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Tom Yeung here with today’s Smart Money.
I used to look forward to upgrading my smartphone.
Every new model felt revolutionary. The iPhone 3… iPhone 6… iPhone 8… every new generation was miles ahead of the one before.
Then something changed.
By the late 2010s, smartphones had become “good enough.” (I now use a Google Pixel with a version number I don’t know.)
Most people stopped upgrading every two years because the improvements simply weren’t worth it. That shift reshaped the entire industry.
Former smartphone giants like HTC, BlackBerry, and Nokia were soon replaced by low-cost manufacturers. Meanwhile, Apple Inc. (AAPL) kept winning – not because it always had the best hardware, but because it owned the ecosystem.
AI may be reaching a similar turning point.
The biggest winners of the next phase may not be the companies building the fastest chips or the largest AI models. Instead, they may be the companies building products people rely on every day.
And a little-known Chinese startup may have just given us the clearest sign yet.
Let’s take a look…
A Free AI That’s Almost as Good
Last month, Chinese startup Z.ai released GLM 5.2, an open-source AI model that ranks among the world’s best.
Unlike models from OpenAI, Anthropic, or Google, GLM 5.2 is completely free. Anyone can download it, modify it, and even use it commercially.
Even more impressive, it’s good enough to run complicated tasks. I’ve taken the model for a test-drive, and can say it’s almost on par with America’s leading AI systems.
And Z.ai isn’t alone.
It’s one of China’s “Six AI Tigers,” a group of startups just months behind the best U.S. companies. They’re giving away capable models and monetizing cloud computing instead.
In other words, cheap, “good enough” AI is arriving much sooner than many investors expected.
Today’s fourth-best AI model can already perform many real-world business tasks, and it doesn’t require Nvidia’s newest chips to do it. Instead, it runs well on the last generation’s hardware that is available to Chinese firms.
That makes AI a lot like smartphones. When technology becomes good enough, buyers become less willing to pay premium prices for cutting-edge hardware unless you own the whole ecosystem like Apple.
In fact, this has happened with almost every new technology. TVs… digital cameras… PCs… solar panels… When “good enough” versions start showing up, price becomes more important than owning the latest model.
This doesn’t mean AI is slowing down, but it does mean that the companies capturing the biggest profits will change.
Why This Changes the Investment Story
Rather than flowing primarily to hardware makers, more value could shift toward businesses that build indispensable AI-powered products, software, and ecosystems.
That’s why Eric has been cautious about chasing the hottest semiconductor stocks after their enormous gains. No one wants to be caught holding the next Blackberry.
Instead, he continues focusing on what we call AI Appliers: the companies using AI to create products customers can’t easily replace.
Several months ago, Eric and I warned that parts of the AI market were becoming overheated. Just as smartphones evolved from breakthrough hardware into everyday commodities, AI may be entering its own “iPhone Moment.”
If that’s the case, the biggest investment opportunity won’t necessarily be building better AI. It will be owning the companies that put increasingly cheap, increasingly capable AI to work.
You can learn more about Eric’s recommended AI Applier companies at Fry’s Investment Report.
Simply click here to learn more.
Until next time,
Thomas Yeung, CFA
Market Analyst, InvestorPlace
