Cheaper models break financing SOTA pace, PRC budget fast follow currently is catching up. If SOTA slows/stalls slower SOTA pace = instead of PRC 6 months behind, they're 3 months behind, or period of overlapping parity before US SOTA grabs lead again for a few months. There may not be economic model to maintain durable lead, which SOTA economic doom spiral condition. Now if PRC fast follow couldn't close gap, i.e if PRC only fast following due to distillation and US SOTA can technically prevent PRC fast follow, and extend gap then maybe exorbitant SOTA spend sustainable. If not sustainable everyone moves to cheaper cycles. This an issue if SOTA cannot be done on the cheap, which also true for PRC, but PRC not doing expensive SOTA, they're doing cheap fast follow.
>why would AI be any different
It's not, someone going to grab big share of AI... but that someone has to be competitive enough for exquisite lock in, and frankly with enterprise reducing SOTA AI spend due to SOTA AI costs, current SOTA AI ain't it. See last paragraph for hopium.
> someone going to subsidize them indefinitely
Yes. Same way Alphabet/Meta can subsidize AI, China has their Baba and tech giants with alternate revenue streams to subsidize AI, even if not SOTA, and geopolitics will make sure US cannot run PRC AI out of business in PRC and vice versa. But geopolitics not stopping PRC companies running other PRC companies out of business, same with US companies running US companies out of business. In this case host countries tech giants with high margin businesses squeezing sole play AI labs. It's just US SOTA ANT/OAI getting murdered is massive economic contagion risk for US vs Zai/kimi not for PRC.
> find compelling
This really not complicated, last couple years, US SOTA labs signed 100s of billions of compute based on projected demand that they could monopolize enough demand to finance compute capitalization. This not stupid investor prior, because their only competitor, PRC was export controlled, compute constrained and shouldn't close gap. But PRC closed gap, made models good enough and architecture efficient / cheap enough so other players, including those in US, can capture large % of demand WHILE using fraction of compute. SOTA labs now looking at margin compression, losing share to good enough competitors and obligatory (now excessive) capitalization. This bad combo for current US SOTA economics. The numbers suggest this is what is happening. There is chance demand increases past projections and extra SOTA compute will be boon, but again, we are seeing most profitable SWE enterprise curtail not increase demand.
> Worst case is all the infra is still useful
IMO this actually best case for US medium term favour, but also another strike against CURRENT US SOTA. Reality is current SOTA is grossly overpaying for compute / AI premium. Even if OAI or ANT dies, their compute can be picked up for pennies on dollar and as long as PRC behind on compute there is potential for cheaper future US SOTA economics from cheaper hardware since crash will lead hardware price regress towards mean. But that boon is for the next guy.
Here's the US hopium: post current US SOTA crash, there is potentially curve where US has so much cheap discount compute, because current SOTA taking the haircut, and where PRC has not much compute, that US will have sustainable SOTA prospects, i.e. the world where US pays $1 for shovels instead of $10 and can buy $10000 worth of shovels while PRC can only buy $100. That's feasible after current exorbitant SOTA economics bleeds it's patients to death and the next US SOTA host get the transplants and lighter balance sheet, i.e. web 2.0 for SOTA AI. Incidentally more likely "winner" of AI... if I had to guess assuming incumbent FAANG doesn't just snatch up ANT/OAI if they explode - new player/entrant who are near SOTA and eventually SOTA but is priced more competitive than AI 1.0 SOTA, that enterprise will gladly pay for since not at current exorbitant rates that's causing enterprise to bail, but it will be fine because AI 2.0 SOTA can be sustained from 3T TAM instead of 30T TAM. Now PRC might still be able to fast follow, but US SOTA economics completely different if cheap hardware = US premium SOTA cost only 2x more than commodity PRC tokens instead of 20x.