Zhu Xiaohu: Model API margins will fall; AI office is the bigger market

Key Info

In a new interview, investor Zhu Xiaohu argues that model API businesses cannot sustain high gross margins over the long run, and predicts AI office will be a much larger market than AI coding.

Highlights

• Model APIs are heading toward commodity-like margins of 10–20%; even Anthropic's roughly 60% gross margin and coding strength face pricing pressure as rivals close the gap.
• Users will increasingly switch to cheaper models once capability converges; a 10% intelligence edge may not justify a 50% price premium.
• Zhu suggests Anthropic's hurry to IPO could be tied to this shrinking window of advantage.
• AI office, he says, will ultimately be much bigger than AI coding; coding simply took off first because engineers are early AI adopters and coding is a natural fit for AI.