Cheap, powerful AI models are increasing usage, a bullish sign for the AI boom

AI companies have competed on having the best and often most dangerous models for years.

Now, they're pivoting to a new focus: cost.

Why it matters: The biggest risk to the AI boom is demand, and recent innovations to make models cheaper while maintaining powerful levels of intelligence have offered a bullish signal.

As the prices of top models from OpenAI, Anthropic and others come down, usage is increasing dramatically, a trend that points to the kind of demand that will be necessary to justify trillions of dollars in spending.

State of play: It's modelpalooza in the AI world this week, with OpenAI, Anthropic, SpaceX and some Chinese model providers all offering new releases.

Most of them are offering shocking levels of intelligence at prices that would've been unthinkable just a few months ago.

OpenAI is releasing GPT-6 Sol and GPT-6 Luna on Tuesday, which brings down the cost for top business customers by 50% from previous iterations of the same models, the company shared with Axios.

Anthropic is releasing Opus 5.5 on Tuesday, which the company says costs around 40% less to run than Opus 5 while maintaining top intelligence.

Elon Musk's xAI on Monday released Grok 4.7 , pitching the new model around price-performance.

Yet in a testament to the sheer brutality of competition in the AI race, it only took 24 hours for new options to wipe out much of that price advantage.

Threat level: The ferocity and speed of the race during an ongoing price war is an issue for OpenAI and Anthropic, which need to retain customers and revenue growth to justify their sky-high multi-trillion-dollar valuations.

Yes, but : Even as they face margin pressure, the trend is positive for the AI boom overall, as the price reductions make it much easier to bet on a bright future for AI use.

Follow the money: There is emerging evidence that cost cutting is a rising tide that can lift revenues for all AI providers.

In a report sent to clients, Citadel Securities found that falling per-token costs are fueling additional usage, and overall AI spending is increasing.