EXCLUSIVE: 'AI Monetization' Is the Real Threat: Why China's Cheap Models Could Rattle These ETFs

China’s rapidly advancing artificial intelligence models could pose a bigger threat to the AI investment boom than a slowdown in Big Tech spending, as cheaper alternatives threaten the pricing power of U.S. AI companies and potentially undermine the economics of the infrastructure buildout.

Tal Schwartz, founder of Ai Funds, the firm behind the Ai Funds High Conviction US Equity AI-Managed ETF (BATS:HIAI), identifies Chinese AI competition as one of the biggest risks facing the industry, arguing that cheaper models could pressure monetization across the AI ecosystem.

“In my view, it’s the chance that AI monetization disappoints because of Chinese ‘AI dumping,’ landing on a highly concentrated system,” Schwartz told Benzinga.

The competitive threat is becoming increasingly visible. Chinese models already handle more than half the tokens on OpenRouter, although they account for closer to 30% of spending, according to Schwartz’s analysis.

An independent tracker of OpenRouter activity showed Chinese models accounting for 65% of tokens but just 29% of spending over the four weeks ended Nov. 1.

Kimi’s Latest Model Highlights the Pricing Threat

The launch of Moonshot AI’s Kimi K3.1 Pro on Oct. 23 offers a fresh example of the growing competition.

Schwartz said the model scores within a point of Anthropic’s Claude Opus 5.5 on a leading coding benchmark, while costing approximately one-fifth as much as OpenAI’s flagship model. “Moonshot plans to release the weights for free by Nov. 4,” he said.

He outlined a potential scenario in which cheaper competition forces U.S. AI companies to cut prices by one-third across half of their API and enterprise business.

“If that pressure forced U.S. labs to cut prices by a third on half of their API and enterprise business, a lab earning about 80% of its revenue there could lose roughly 13% of revenue, while carrying compute commitments sized for growth,” Schwartz explained.

Which AI ETFs Could Face the Pressure?

The potential fallout extends beyond AI software companies to semiconductor manufacturers, cloud providers and data-center infrastructure suppliers.

The Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) and Roundhill Generative AI & Technology ETF (NYSE:CHAT) offer exposure to companies across the AI ecosystem, making their performance sensitive to changing expectations around AI adoption and monetization.

Meanwhile, semiconductor-focused funds such as the VanEck Semiconductor ETF (NASDAQ:SMH) and iShares Semiconductor ETF (NASDAQ:SOXX) could face indirect pressure if weaker monetization eventually forces AI companies and hyperscalers to reconsider infrastructure commitments.

Schwartz highlighted another vulnerability in the supply chain: “Five customers made up 70% of Nvidia’s receivables at the end of July.”

He warned that financial strain at a major AI lab could spread quickly to cloud providers and chipmakers. However, cheaper models could make the technology more accessible, potentially supporting long-term infrastructure demand.

“Cheaper AI also expands usage, so this risk cuts both ways, which is exactly why our index tracks it,” Schwartz said.

For ETF investors, this creates a more complicated risk equation. Growing AI adoption could continue to benefit semiconductor and infrastructure companies even as falling model prices put pressure on the profitability of AI developers. But if monetization disappoints and companies begin reassessing their computing commitments, the impact could spread quickly across the supply chain. The biggest question may not be how fast AI adoption grows, but whether the companies powering that growth can make enough money from it.

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