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The Economics of Generative AI: Two Years Later

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Semi is a one-player game. Apps is a two-player game. Infra is the only competitive layer.

I am excited to update my original analysis from 2024: The Economics of Generative AI. This is the analysis I come back to more than anything else I’ve written because it’s a reminder of the “physics” of the AI industry. Two years ago, I found that the Gen AI value chain was inverted: the compute layer captured ~83% of all revenue and ~87% of all gross profit. The application layer, despite being closest to end customers, earned almost nothing. I predicted this would flip over time, following the pattern of every prior platform shift. Two years ago, I said: Two years since, the AI…

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