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You are almost entirely right but you are missing the connection: there is one possible way to make huge profits - just stop the R&D. Right now a majority of resources (compute + engineers) are actually being spent on R&D for the next big model in the AI race. If they can just pause model development instead of burning it on competing in the race, they'll be profitable immediately. Obviously this cannot be a unilateral decision, if you are the only frontier lab ceasing R&D, then no one will be using your model after six months and you'll make no more money.
Compute also complicates the picture a lot. Nvidia has around 80% margins; something like 40% of the LLM serving TCO is paying the Nvidia tax. In a world where compute isn't as speculatively valuable as it is now, that cost decreases a lot; cut Nvidia's margins to a more reasonable 30-40%, and everything becomes much more economic.
A lot of the expense of the AI build out is just speculative bidding by AI labs to get more, faster. And the biggest bag holder from a bubble popping is probably Nvidia itself (with Oracle and SoftBank also having starring roles).
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It also seems a lot more palatable to both current and future investors to say "our product is so cool that THE GOVERNMENT shut us down, so we're still working on it, just more slowly" than to cry uncle first and say "you know what, we can't afford this, we're going to let Sam/Dario take the lead."
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Yeah. Each model comes close to making back its investment in a few months. Then a newer model gets released before it can actually "break even", it lasts a few months, and the cycle repeats.
Also, the more efficient models already exist: The Sonnet/Mini/Flash tier is cheaper and only months behind the Opus/[non-specified]/Pro tier. It only seems like a lot because AI progress speeds are wild.
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