Open Source Models Will Slow AI CapEx Spend
It seems obvious, but many macro analysts have yet to make the connection
I’ve seen a number of macro analysts parrot concern around the private credit market. It’s true, many of these private credit shops own high yield/junk credit and those underlying businesses are in trouble. The media has painted private creditors as owning software debt and not much else, but that’s not true. Private creditors own strip malls (yes, America’s pizza shops, tanning salons, auto repair shops and local restaurant chains have private debt in those deals), minor league sports teams (even professional teams, we just saw the Celtics trade one of their 2 best players as the PE owner did not want to sign a max extension as he does not own the arena his team plays in). The 10YR has been hanging around 4.5% since April and now with the oil market having cleared that tranche of oil that was floating in the Strait for months, we are seeing the price of oil tick back up, which means upward pressure on yields, which means the screws are tightening on private creditors and the businesses they invest in.
Don’t worry, AI CapEx will support the private credit market - says the media. Will it? Open source models have been taking share for a year and that is only accelerating since the Trump Admin yanked Fable 5. It does not matter that Fable 5 is back, the damage is done.
China is flooding the market with frontier quality open source models. Companies are using those models, they are hosted locally on a private cloud. Those companies control their own data and the model’s weights. Nothing goes back to China. The China fear mongering is a marketing tactic by Anthropic and OpenAI.
Therefore, as China floods the market with open source models, those models will slowly hollow out the economics of the American AI ecosystem. If you don’t need bleeding edge models for your use case, why pay 10x for Opus 4.8 or 20x for Fable 5 when you can use GLM 5.2? There will obviously be a cascading effect to chip prices, including memory, and of course this will have a negative impact on data center builds, at least until the economics sort themselves out. Prices need to come down. For everything.