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Bernstein’s report says the global artificial intelligence (AI) market is likely to evolve into a two-tier structure, with premium frontier AI models serving highly specialized use cases, while lower-cost models dominate mainstream applications.
The brokerage said recent trends in the AI industry, including concerns over the rising cost of advanced AI models, indicate that users are increasingly focused on return on investment (ROI) from AI implementation.
Bernstein noted that the high cost of advanced models is forcing developers and companies to rethink how they use AI. He said AI users are likely to choose different models depending on the value of the task being performed, rather than relying on a single platform for all applications.
The report argues that the commoditization of AI will not necessarily be driven by convergence in model intelligence, but rather by whether users perceive competing models as competent enough for a given task.
According to Bernstein, “consumer-centric AI (ordering bubble tea, booking a hotel room) will become commoditized relatively quickly,” while more complex enterprise functions such as coding, financial modeling, and advanced scientific research will continue to require cutting-edge AI systems.
The report added that once AI gains sufficient reliability for specific use cases, competition will increasingly be determined by factors such as cost, reliability, and availability, rather than superior inference ability.
“As AI becomes ‘good enough’ to support a particular use case, we expect the arbiter of competition and market share to shift from inference ability to availability and price,” the report states.
Bernstein expects the major U.S. AI labs to remain at the forefront of the technology and continue to command premium prices for advanced and specialized applications. However, the company believes that Chinese AI companies have the potential to gain significant market share in mainstream AI applications by offering lower-cost alternatives.
The report says that Chinese AI companies could benefit from lower operating costs and the ability to keep up with cutting-edge developments around the world, rather than incurring the full cost of exploratory research.
Bernstein said the “Chinese open source model” is likely to emerge as a valuable option in the global AI market, especially for users looking for affordable AI capabilities.
Despite geopolitical and data security restrictions limiting adoption in some Western markets, Bernstein estimates that Chinese AI companies could still have access to 35-40% of the global AI total addressable market (TAM).
The report further suggests that AI companies could ultimately increase profitability as more use cases are effectively solved. As a result, R&D resources can be directed to newer, more challenging problems.
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“Once a use case is ‘solved,’ the benefits of doing incremental research and development on the same subject diminish,” Bernstein said, adding that this could ultimately limit the growth of AI training costs and improve operating leverage for AI developers.
