Deep Dive: Did China Break the AI Trade Again?

**Zaid** (0:00)
Welcome back to The Rundown for another Weekend Deep Dive. Today, we are talking about Kimi K3, a new Chinese AI model that sent shockwaves through Silicon Valley and Wall Street. Last week, a Chinese startup called Moonshot AI released a model that rivaled some of the best models from OpenAI and Anthropic, and within hours, tech stocks were selling off. So in today's episode, we'll break down what Kimi K3 actually is, why cheaper and open source AI models could completely change the economics of the AI industry, and who the biggest winners and losers could be of this new AI reality. We got a great one for you today.
Let's dive in.
Before we get into why markets are freaking out, let me tell you more about Kimi K3. Kimi was released by a Beijing based AI startup called Moonshot AI. Moonshot was founded back in 2023 by 33-year-old Yang Zhilin. And this guy has a pretty stacked resume. He got his PhD from Carnegie Mellon, and he worked at both Meta and Google Brain. He eventually went back to China, though, to build his own AI lab and founded Moonshot AI. And for the last year and a half or so, Moonshot has mostly been living in DeepSeek shadow. DeepSeek became the breakout Chinese AI startup after releasing their R1 model in early 2025, which also caused a market panic. What's interesting about that is that Moonshot also released their own model on the exact same day as DeepSeek R1, but nobody really cared at the time because everyone was obsessed with DeepSeek. Well, fast forward to July 17th, 2026, and Moonshot finally got its moment. They released a model called Kimi K3, and this thing immediately caught the attention of both the tech industry and Wall Street. See, this model is almost as good as the leading edge models from Anthropic and OpenAI. According to independent benchmarks, it ranks third in the world behind only Anthropic's Fable 5 and OpenAI's GPT 5.6. And in some coding benchmarks, Kimi actually beats both those models. And just digging a little deeper, what makes Kimi K3 so impressive is that it's a massive model with 2.8 trillion parameters, making it the largest open weight AI model released so far. And we should talk about the open weight part here because that's pretty important too. An open weight model basically means that developers can download the underlying model and customize it however they want and run it on their own hardware instead of being forced to pay Moonshot for every time they use it. Moonshot is planning to release the model weights of Kimi K3 on July 27th. So they might have already come out by the time you're listening to this episode. Now what was so shocking about this model release is that a relatively unknown Chinese startup with about 300 employees and a $20 billion valuation built a model that was competitive with cutting edge models coming out of OpenAI and Anthropic, which have massive head count and billions of dollars in funding. This is kind of like Kate Verde tying Spain at the World Cup. And the part that investors are paying attention to is the price. Moonshot charges about $15 per million output tokens for Kimi K3. For some context here, OpenAI's top model cost about $30 per million output token and Anthropic's Fable 5 cost about $50 per million output token. So Moonshot is able to offer something that gets pretty close to the frontier level performance while undercutting the price by roughly 50 to 70%. So now Wall Street is asking questions and panicking about the economics of AI. So let's talk about it.
Okay, so why did this AI model from a relatively small Chinese startup cause tech stocks to sell off? See, the thing is the entire AI trade and a big chunk of the stock market for that matter is built around one major assumption. And that assumption is that the best AI models will stay scarce and expensive, and that building models will require spending more and more money. You know, that's why OpenAI and Anthropic have raised tons of money at near trillion dollar valuations. These AI labs have the best models in the world, and investors assume that because they have the best models, they can charge premium prices for years to come. Despite OpenAI and Anthropic not being profitable today, investors think that eventually they'll generate enormous profits. And there's like a ripple effect happening across the economy here. Because OpenAI and Anthropic were able to raise all this money, they've committed hundreds of billions of dollars towards things like chips and data centers and computing power, which has propped up the stock price of companies like Nvidia, AMD and other chip stocks. Not to mention all the companies benefiting from the AI data center build out, like power companies and electrical companies and construction companies. I mean, the AI spending boom is so big, it's literally showing up in US GDP numbers. So think of it like a chain. Premium models justify the premium prices. Premium prices justify raising a ton of money. All that money is then leading to the biggest capex spending in corporate history, and that capex is the revenue engine for a big chunk of the stock market today. So when Kimi K3 bursts onto the scene, investors start questioning the assumption at the very top of that chain. Because if a 300 person startup in Beijing can build a model that's nearly as good as the best American models, well, then what happens to the premium pricing? What if AI models just become a commodity at some point? And that's key because when a product becomes a commodity, it's a race to the bottom when it comes to prices and profits tend to go along with it. When you look back though, for the last three years, AI models have been the opposite of a commodity. Companies have paid millions of dollars to use models from OpenAI and Anthropic because there wasn't many alternatives that could do the same level of work. But now companies might be able to use a much cheaper open weight Chinese model for most of their workloads and only pay Anthropic or OpenAI for what they really need the absolute best models for. In fact, this is already starting to happen. DoorDash said that they used the Moonshot models for lower level work and they used Anthropic models for their hardest cutting edge tasks. Airbnb is also doing the same thing. Their customer service agents run mostly on Alibaba's Quen model. CEO Brian Chesky says that that model is fast and cheap. And by the way, even Microsoft is reportedly testing whether Kimi K3 could eventually power some of their features inside Copilot. So American companies are starting to swap in Chinese models the same way your dad would buy the store branded cereal because it tastes basically the same as the name brand cereal, but costs half as much. And that's what Wall Street is trying to price in right now. Could more and more American companies choose to ditch OpenAI and Anthropic and go with cheap Chinese AI models? This adds a level of uncertainty to the AI trade, which by the way, was already looking shaky these days. But here's the thing. The rise of cheap Chinese AI models isn't bad news for everybody. In fact, for some parts of the AI economy, cheaper intelligence might be the best thing that could possibly happen. So let's talk more about some of these potential winners and losers.