If Everyone Wins, Everyone Loses
If there’s no moat, who wins in AI?
In a healthy supply chain, very few companies are making an outsized profit because high profits get competed away. Without some kind of moat or competitive advantage, there’s no pricing power or differentiation.
There’s usually one power player, and everyone else is competing around the margins to gain a foothold as a commodity supplier, a niche modular supplier, a distributor, or play some other important, but often less profitable role.
The iPhone is the perfect example of this. $Apple(AAPL)$ makes a gross margin of nearly 40% on its hardware, and the business overall has a 32.6% operating margin. $Samsung Electronics Co., Ltd.(SSNLF)$ is far less profitable in smartphones and $BlackBerry(BB)$ …is gone now. Even Apple’s biggest supplier, Foxconn, barely squeaks out a profit at all.
Apple’s business is so good it soaks up most of the profits in smartphones.
You see this with an aggregator like $Netflix(NFLX)$ and content supplier/struggling streamer $Warner Bros. Discovery(WBD)$ .
Even the trend for $Uber(UBER)$ vs $General Motors(GM)$ tells a story of where the power in the market is going.
Over and over again, being #1 in a market is a great place to be. Being #2, or worse, is a recipe for disaster as an investor (not a rule I always follow).
And that leads me to today’s place in the technology landscape.
The biggest companies in the world are spending trillions of dollars chasing after the AI lead.
And for what?
To end up in a worse place than they are today?
Everyone Is #1
In almost any line of business, being #1 has a success feedback loop that becomes a moat.
The #1 company has the most revenue and profits, allowing it to invest in new products to expand its lead, which in turn drives more revenue and profits, reinforcing operating leverage and so on.
This is why the Smiling Curve is a core strategic concept in Asymmetric Investing.
And no industry exemplifies the success of being #1 more than tech.
$Apple(AAPL)$ ( ▼ 0.26% ) is #1 in smartphones and is therefore one of the most valuable companies in the world.
$Alphabet(GOOG)$ ( ▲ 0.21% ) is #1 in search and is therefore one of the most valuable companies in the world.
$Microsoft(MSFT)$ ( ▼ 0.8% ), $Meta Platforms, Inc.(META)$ ( ▼ 2.43% ), $Tesla Motors(TSLA)$ ( ▼ 0.53% ), the list goes on and on.
They’re all #1 in their respective product lines. And they’re some of the most valuable companies in the world.
But here’s the part we rarely talk about. They rarely compete with each other across their lines of business.
They might dabble in each other’s businesses in order to keep each other honest. Google in social media or Apple in maps come to mind. But Apple isn’t going all-in on search or social media, Google isn’t building warehouses to take share in e-commerce, and NVIDIA isn’t dabbling in manufacturing EVs.
Big tech companies don’t necessarily get along, but they don’t often directly compete.
UNTIL NOW!!
Everyone Is Fighting For the Same Pie
Artificial intelligence is different.
Every big tech company (besides Apple) is chasing after the AI market in one way or another. And they’re sacrificing incredibly profitable businesses to chase after the unknown. In just four quarters, $Amazon.com(AMZN)$ Meta, Tesla, Microsoft, and Alphabet companies went from $65.7 billion in free cash flow in a single quarter to an expected negative $21.0 billion in free cash flow in the current quarter.
And they’re all chasing after the same thing.
The AI lead!
I look at the AI industry as five components today: chips, models, cloud infrastructure, applications, and the operating system that runs them. What you see is that in AI, there are multiple competitors and anyone who is #1 in any segment isn’t likely to last there for long.
$NVIDIA(NVDA)$ wants to sell chips to all of the clouds, but Amazon, Meta, Microsoft, and Google happen to be its biggest customers…and they’re all making their own AI chips.
OpenAI is building models, but so is Meta, Google, and even its biggest chips supplier (for now), NVIDIA.
They’re all building AI apps.
NVIDIA is selling everything it can to the hyperscalers’ clouds while also building up neoclouds so there’s a non-hyperscaler ecosystem.
ChatGPT is the dominant AI app.
Nope, it’s Claude.
Wait, it’s Muse.
In nearly every piece of the AI value chain, there’s not just competition, there’s trillion-dollar companies fighting over the same turf.
I’m a student of investing history, and I can’t think of a time this happened or a time when the incumbents burned all of their cash flow, preemptively disrupting themselves.
Why I Care: Competition Drives Down Profits
And here’s why this matters.
We’ve gone from a world with clear delineation between the big tech companies’ product lines meant they could dominate an industry without competing with each other. Sure, they could compete, but why do that when it’s more profitable to own your own silo in tech?
Now, they’re all going after the same customers with the same offerings and the same technology. They’re competing more on price than differentiation, and switching costs in AI are low.
In that world, competition drives down profits.
If Everyone Wins, Everyone Loses
Maybe there’s a world where everyone wins in AI. One where no one drops out and gives up. Where spending $200 billion on data centers with debt funding pays off.
Maybe the pie is big enough for everyone to survive.
What’s unlikely in that world is any of these businesses being extraordinarily profitable.
Because if there is an area of extreme profit, it will be competed away.
OpenAI owned the AI world until Claude came along.
And when Claude won the enterprise market in early 2026, it took a few months for OpenAI to train new models, rebuild its app, and take share back.
Now Meta Muse is taking mind share with consumers.
But Muse’s best use case is reading email and calendars…
Which means Muse is connecting to Google’s data. You think Google is going to take this lying down?
And back and forth we go.
More than two years ago, I called this the Artificial Intelligence Circular Firing Squad.
Since then, we’ve seen more competitors join the fray.
In what world are all of these companies extraordinarily profitable long-term?
Who gives up and decides not to compete?
Where’s the moat in AI?
Right now, there’s enough to go around for everyone. That paradigm won’t last long. And I think we may go from trillion-dollar frienemies to the big tech companies competing away their own profits in search of AI dominance.
And anyone in AI who isn’t already a trillion-dollar company may not stand a chance in this world.
If everyone wins…everyone loses.
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