The AI model race is getting more crowded but the AI trade is still on
u/timestap ·
Reddit — r/ValueInvesting
· July 15, 2026 at 16:26
· ⬆ 15 pts
· 💬 3 comments
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Summary
The post explores two scenarios for frontier AI labs: one achieving recursive self-improvement (dominance) or a fluid oligopoly with margin compression.
The author argues that public-market investors can still capture AI beta through compute bottleneck suppliers, but the easy trade is over and deeper analysis of market growth and pricing power is needed.
Quality assessment: Well-researched opinion piece with a strategic framework, but lacks specific, actionable data or positions. More of a framing than a hard DD.
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I initially thought the capital intensity of frontier AI development meant that it's impossible to catch up with AI labs. But with a bunch of near-frontier model releases recently (some from China), the market is no longer an Anthropic / OpenAI duopoly.
I think this creates two scenarios:
**One lab achieves recursive self-improvement.** It develops a compounding capability advantage that captures most of the market.
**No lab gets to recursive self-improvement.** The frontier remains a fluid oligopoly, token prices continue falling, and labs see significant margin compression.
In the second scenario, labs have to compete via conventional moats: distribution, workflows, proprietary data, cost, access to specific geos, etc.
Where this matters for us (public-market investors), is that it's actually fine to not have access to private companies because all of these labs need compute (the bottleneck suppliers give us another way to capture this AI beta). But, the easy version of the AI bottleneck trade has ended.
In this leg of the AI trade, we need to do way more analysis on ultimate market growth & the ability for the bottleneck suppliers to maintain pricing power. Given the current fluctuations in the market, there are also much more tactical / short-term signals we need to track (e.g. CXMT / YMTC fab ramps and model efficiency improvements if we are looking at the memory layer).
I wrote a longer version with the lab-by-lab breakdown and investment framework here: [https://eastwind.substack.com/p/the-warring-states-period-frontier](https://eastwind.substack.com/p/the-warring-states-period-frontier)