Atreides Management chief investment officer Gavin Baker unveils one scenario that he believes could truly derail the economics of the AI boom.
In a new conversation with Patrick O’Shaughnessy, the veteran tech investor says the most dangerous outcome for AI has nothing to do with bubbles or valuations.
He points to a potential shift in how and where powerful models may run, a change that could upend the cloud-based economics supporting today’s AI boom.
“There’s one really obvious bear case. And it is just Edge AI. And it’s connected to the economic returns to ASI. In three years, on a bigger and bulkier phone to fit the amount of DRAM necessary and the battery won’t probably last as long, you will be able to probably run a pruned-down version of something like Gemini 5, or GROK 4, GROK 4.1, or ChatGPT at, I don’t know, 30, 60 tokens per second.”
Baker says that once near-frontier models run locally on consumer hardware, the cost advantage evaporates, and with it, a major pillar of platform dominance. He says he’s looking at Apple’s likely strategy as the clearest example of this shift.
“And then that’s free. And this is clearly Apple’s strategy. It’s just, we’re going to be a distributor of AI, and we’re going to make it privacy safe and run on the phone. And then you can call one of the big models, the god models in the cloud, whenever you have a question.”
He warns that if locally run models hit acceptable speed and cognitive performance for mainstream users, it could compress the value capture of hyperscalers and undermine cloud-based revenue forecasts.
“And if that happens, 15, 30, 60 tokens a second at a 115 IQ is good enough. I think that’s a bear case, other than just the scaling laws breaking… other than scaling laws slowing down, other than there being low economic returns to ASI, Edge AI is to me by far the most plausible and scariest bear case.”
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