AI Economics Under Strain as Experts Warn of Generative AI’s High Costs and Low Margins

Generative AI is upending the traditional software profit model in which greater scale drives down marginal costs. Speaking in a spring course at Stanford University, Altimeter Capital partner Apoorv Agrawal said every inference incurs GPU and cloud-computing costs. Adding users therefore does not necessarily improve gross margins, while industry value is increasingly concentrated in semiconductors and infrastructure.

TechNews cited the course analysis on April 27, 2026, saying the AI ecosystem generated about $350 billion in new revenue over the previous two years, with roughly 75% flowing to semiconductors. Nvidia posted a 75% gross margin in fiscal 2025, compared with about 0%–30% at the application layer. ChatGPT has about 900 million weekly active users, but annualized monetization is just $10 per user, below Alphabet’s nearly $100.