The era of 'tokenmaxxing' is over — and investors shouldn't take unlimited AI demand for granted

The era of tokenmaxxing is officially over. That's because the demand for computing capacity isn't actually unlimited, as AI boosters once touted.

Instead, compute appears to be highly price-sensitive, as buyers facing higher prices and lower returns cut back on usage or pivot to cheap open-source alternatives.

That's the key finding in a new blog post by Apollo chief economist Torsten Sløk: don't take AI demand for granted.

(Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)

Ultimately, the key metric that will define the AI build-out isn't physical capacity or power, Sløk said, but the price users are willing to pay for the compute being built. And token spending has sharply decreased.

The slowdown in token spending among corporations suggests that the lavish appetite for compute only exists at the right price — when it is effectively free.

An analysis of declining returns on invested capital for the five largest hyperscalers suggests invested capital grows faster than the earnings it generates. That mismatch gets at the heart of the AI bull case and gives investors questions to ask and numbers to watch for as we get deeper into Big Tech earnings.

Companies are willing to pay a high price for compute, he said, if they are able to boost revenues, squeeze out better profit margins, or cut costs. But such results at a meaningful scale aren't showing up yet.

So far, he said, the AI payoff has been slow to materialize. That suggests more companies are reluctant to dedicate resources to pay for AI services. Those returns may actually emerge. But the uncertainty comes at a price.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban .