Jefferies’ Chris Wood Sees ‘Massive Capital Destruction’ in AI

The most likely long-term outcome of the AI boom will be massive capital destruction in the US, with market share going to cheaper open-source Chinese models, according to Jefferies Financial Group Inc.

“Initially the focus was on the cheapness of China models and the related commoditisation threat facing large language models,” Chris Wood, global head of equity strategy, wrote in a report on Friday. “But now there is also a growing realisation that China has become a technological peer to the US in AI.”

Wood cited data from OpenRouter, a global aggregator platform, showing that top Chinese models processed 76.12 trillion tokens on the platform in the week ended Sept. 27, up from 4.37 trillion in late April and well ahead of 14.2 trillion for leading US models, according to the report.

The views come as investors debate whether the AI trade, one of the best-performing corners of global equity markets, has further to run. Optimism remains strong, but rising borrowing costs and growing US-China competition are fueling questions over which companies will emerge as the biggest winners.

Wood also flagged rising credit risks surrounding the AI boom. He said the investments are increasingly being financed with debt rather than hyperscalers’ cash, while the emergence of Chinese models such as Moonshot AI’s Kimi K3 and falling token prices raise concerns about whether large language models can ever be profitable.

That could pose a risk for hyperscalers that have built data-center capacity on expectations of sustained demand from the likes of OpenAI and Anthropic, he added.