In AI race, software is now winning alongside chips

Summary

Services like Meta’s Muse AI just increase demand for chips. But they’re also a big win for software

The year is three-quarters over and it is looking like the most consequential one of the artificial-intelligence boom so far. Agents went mainstream for enterprise users during the first half of the year, and if Meta Platforms’ Muse is any indication, consumers aren’t far behind. At the same time, cheap open-weight models—which anyone can download for free and run on any capable hardware—have gotten quite good. They are putting pricing pressure on the two leaders in AI model-making, OpenAI and Anthropic, even as they have rapidly pushed the AI frontier forward this year.

As the last 50 years of technology development have taught us, software eventually wins. AI is proving to be no different. For example, early PCs were expensive toys for hobbyists until the first spreadsheet software, VisiCalc, came out in 1979 and turned them into professional tools. It turned the Apple II into a hit, and launched what is now one of the world’s most valuable companies. We see the same thing in the mature smartphone market. The iPhone competes against flagship Android phones at similar price points with similar hardware. Customers are choosing between the operating systems and the selection of software for each.

In the first phase of the AI boom, the focus was on data center hardware and models. Nvidia, the AI chip leader, has seen its stock go up 1,263% since ChatGPT was released in late 2022. The average Wall Street analyst price target predicts the stock could rise another 44% from its current level. During the same period, OpenAI and Anthropic have gone from unknown start-ups to potential trillion-dollar-plus valuations.

Meta’s Muse agent cloud software runs on AMD CPUs. The model behind Muse, called Muse Spark, runs on Nvidia servers and Meta’s own custom MTIA chip made in conjunction with Broadcom. Both types of chips are manufactured at Taiwan Semiconductor Manufacturing.