Gavin Baker posits that an oligopoly of frontier AI labs with 90% inference margins would vertically integrate the entire AI stack, squeezing chips, power, data centers, cloud, and software. Increased competition at the model layer, potentially from open-source models like Kimi K3 or vertically integrated players like Meta, would lower model margins. This margin shift would benefit every other layer of the AI infrastructure, including power, semiconductors, and hyperscalers.
Lower model margins due to competition or vertical integration would reallocate profit dollars to compute, power, and networking infrastructure suppliers.