The Deflationary Effect of AI on Business

AI technology is significantly deflationary, allowing startups to achieve meaningful efficiency gains and cost savings with relatively low investment. This shift enables new companies, particularly startups, to offer more competitive pricing compared to established incumbents. As AI adoption increases, businesses are expected to see an evolution in profit margins, potentially rising to 70%-80% over the next two decades, compared to historical margins of about 30%-40%. This rise in margins suggests increased competition where numerous companies can thrive simultaneously, leading to market expansion. However, it poses a challenge for larger firms to realize value from their investments, hinting at a necessary recalibration of capital expenditures in the industry.