Li Lu, Founder of Himalaya Capital: The Cost Structure of AI Is Fundamentally Different from the Internet
Speaking at Columbia Business School in New York, Li Lu pointed out that AI is always accompanied by incremental costs, which is fundamentally different from the internet model where one-time investments lead to long-term monetization. Therefore, development pacing requires multi-layered considerations.
Li Lu, founder and chairman of Seattle-based value investment firm Himalaya Capital, made a judgment on the economic structure of artificial intelligence during a dialogue at Columbia Business School in New York: this technology is always accompanied by incremental costs, which is fundamentally different from the internet and many previous technologies. His exact words were that in the internet era, you could make a one-time investment and then monetize it for a long time through advertising; but AI is always accompanied by incremental costs, so "you have four or five layers of consideration for the pacing and development."
The practical implication of this distinction is that in the previous technology cycle, the core logic of platform companies was heavy asset construction in the early stages (servers, networks, content ecosystems). Once infrastructure was in place, marginal costs approached zero, and revenue could rely repeatedly on advertising or subscriptions. Investors granted high valuations based on the belief that economies of scale would continue to dilute costs. Li Lu believes AI has broken this premise—reasoning and computing are not one-time investments but expenses that grow continuously with usage volume, meaning that scale does not necessarily bring the same marginal cost reductions.
The background for Li Lu's remarks was his overall observation of the divergence between Chinese and US stock markets. He acknowledged the impact of China's property downturn and the ten-year stagnation of its financial markets, but also pointed out that China's manufacturing capabilities, technological self-reliance, and competitiveness are advancing, with some excellent Chinese companies trading at relatively low prices. He believes that the current market divergence—where capital flows excessively into top-tier targets—actually creates a better opportunity set for rational investors, because "a large number of originally excellent enterprises are trading at very low prices."