I believe 2025 is the year that AI has become a commodity – particularly for LLMs. This shift plays a significant role in economics, whereas previously AI was married to specific actors like google, nvidia, or openAI and was a technological asset for each company.
What does it mean to be a commodity?
A commodity is a common resource that can be traded with a known value. When I say AI is now a commodity, I am effectively saying that the big companies are losing their technology advantage. Instead of a company getting ahead financially because of having the “Best AI”, instead companies get ahead by making AI as cheap as possible.
In a simple terms, AI is no longer about having a superior technology but instead about providing value and efficiency.
We have seen the progress in AI models converge to a “good enough” output from every player. Because new advancements give very minimal advantage and sometimes come at a cost, products like o3-mini, deepseek distilled, grok-3 mini varients, have emerged offering better economic value.
It’s a process known as commoditization, which according to investopedia:
[Commoditization] removes the individual, unique characteristics, and brand identity of the product so that it becomes interchangeable with other products of the same type. Making commodities interchangeable allows competition with a basis of price only and not on different characteristics.
What does that mean for AI advancements?
AI will still have marginal advancements when it comes to logic and reasoning. The results of the bigger models will get better, but its not0 going to be a driving factor for AI.
Companies will see the benefit of using AI ways that wasn’t economical before. Ultimately, AI will see a bit of a plataue in performance benchmarks.
What is the impact of this for companies?
Most companies will continue to operate as they do now: offering AI features to customers as an incentive to use their product.
Winners:
- Companies such as OpenAI will continue to see growth because their models are still the go-to and used by many customers, they will rely on models that are cheaper to operate and provide higher profits as a result.
- Companies such as Facebook, Google, Microsoft will see higher profits as well. They will continue to invest in cost-optimized solutions that can benefit their bottom line while still providing AI value to customers.
- new AI hardware players such as AMD, Intel, and Apple will have more control and power over their technology because AI can be applied generally to more hardware configurations.
Losers:
- Companies such as Nvidia will see the biggest hit from the commoditization of AI, because their products are not the only path to AI. AI models will no longer rely on propreitary technology from nvidia.
When will full commoditization occur?
The transition to a fully commodized AI world will take time and depends on 3 factors:
- AI models will fully shift to “mini” variants and companies will use distilled versions for more things.
- Companies will begin purchasing alternative hardware that is optimized for inferencing tasks on these mini models, saving cost over time.
- AI sdk’s will begin supporting these new models for user-end customers as well as large companies.
I expect the vast majority of this to happen by the beginning of 2026.
Is commoditization good?
In general, commoditization is a good thing because it moves the product category to a market that is free.
Commodities open up the playing field for more competition, which benefits the customers on a cost basis.
The biggest disadvantage is that performance advancements are no longer the most important thing, which can slow down innovation in that respect.
Bottom line
All popular technology products become a commodity eventually. The personal compute, the mobile phone, etc. AI is no exception. and particularly LLM’s have needed this transition quite badly – it has scaled faster than infrastructure can keep up.
It has been very interesting to watch this process, because its been extremely accelerated for AI compared to many past products.
Hopefully we can see a graceful transition and the shift in economics doesn’t cause a shock – or crash.