Applied AI Will Rewrite the Rules of Technology Value Creation

Read the headlines today, and AI is largely a story of chips and foundational models. It is already rewiring expectations for technology, but in many ways the most exciting part of the tale is still ahead.

In each era of technology, the most value is always apportioned at the applied layer, where customers interact with technology, and markets are created. By leveraging the advantages at the infrastructure levels to solve well-defined problems for customers, the new companies that emerge at the application layer create new categories and define the business models that are synonymous with the era.

Today, we already know that Applied AI will have a larger volume of company creation than the internet, mobile, or cloud waves. This potential means the opportunity at the applied layer is even larger than past eras, particularly at the seed stage. Let’s walk through how we got here, what’s different about the AI era.

The Applied Layer and the Rule of 3

As technology leaps forward, new markets are created. Whenever there is a step-change in capacity for digital connectivity and efficiency, new economic models are born with it, each unlocking greater multiples of value.

Consider the advances of the last three decades: 

The popularization of the internet led to the development of tools that organized and centralized information through search, and enabled e-commerce. This was coupled with internet-native marketplaces that mediated the exchange of value, while bidding and measurement revolutionized media.

With the arrival of the cloud, the transformative efficiency in how servers and databases are accessed and deployed enabled massive scale, allowing software applications to be delivered over the internet. The subscription soon became the mechanism that made on-demand an expectation, and SaaS ushered in an explosion of B2B category creation.

Mobile put the internet in everyone’s pocket, marking the biggest distribution unlock by linking both compute and media to every device. The app marketplaces that followed galvanized a wave of entrepreneurship and ushered in the rise of social, which linked relationships to communication.

In every generation, lasting companies were created at the application layer that gained significant market share from incumbents, and in many cases disrupted them. The internet era launched Amazon as the global force in commerce, while Google won search and forever changed media and content. Cloud saw Salesforce remake B2B with CRM, Netflix shift our content consumption habits, and Shopify usher in the DTC revolution. In the mobile era, it was Facebook harnessing the social graph, Uber rethinking transportation, and YouTube shifting how we use video.

With this creative destruction, each era saw steady growth in generated value. This progression is known as the “rule of three”theory, which states each new wave generates roughly 3x the value of the last, according to a study by Fundrise.

To be sure, there was value distributed through the layers of technology delivery. Beneath the application layer, there are chip makers like Texas Instruments and Intel that provide the hardware and general tech companies that provide infrastructure — think AWS in the cloud era or Apple’s iOS in the mobile area. These are not small businesses.

But the largest advantages in scale, disruption, and market creation occur closest to the consumer. It is the applied layer that witnesses breakneck growth, sustains companies, and makes more room for new entrants in each era.

Through the internet, cloud, and mobile eras, Fundrise finds that the application layer accounted for around 50% of the value. Meanwhile, the chip and general tech layers accounted for around one-third of the value, or less.

How a Technology Wave Reaches Its Apex

At the beginning of a new era, it may not look like the value creation story at the application layer is going to happen at first. The chip and general tech companies typically kick off the transition, as the increase in compute creates an advancement that enables the creation of new platforms. These companies receive the early market share, but it’s important to remember that they are CapEx-intensive businesses. They require massive infrastructure to power, store, and deliver technology. Over time, delivery capabilities often get more efficient, but then only a few players remain. In each wave, there were a total of 3-5 companies at the chip and general tech layers that captured nearly all of the available value.

Over time, new companies formed on top of the foundation. SaaS companies subscribed to AWS. The App Store spawned new app companies. A previously-untapped application layer eventually resulted in numerous new categories, and captured the majority of value creation. The multiples are most evident in the raw count of companies that made a true market impact. In the internet era, a few companies in the applied layer mattered. In the cloud era, a hundred mattered. A thousand mattered in the mobile era. A 10x improvement in compute resulted in a 10x increase in companies that created markets.

Applied AI Will Be Bigger Than Any Other Era

This pattern is instructive as we stand in the early phases of the artificial intelligence era. Like past transitions, there is a fundamental advance in technology with generative AI and LLMs. There are a few leaders in chips providing increased computational power (Nvidia, AMD) and a few in general tech are providing the foundational models to build on, such as OpenAI, Anthropic, and Gemini.

Having witnessed past eras, this looks familiar to our team at Grit Capital Partners, even as the early signals indicate that AI will surpass anything we’ve witnessed previously. Google CEO Sundar Pichai has said that AI could be “bigger than the internet itself.” It marks a 100-year technology transformation, and with that, the opportunity represented by Applied AI is of a much larger scale than the applied layer of smaller tech transitions.

AI applications alone have the potential to generate $11 trillion to $17.7 trillion annually by 2040, according to McKinsey & Company, which is already far above the $6.5 trillion market cap of the entire cloud market in 2025. For AI to meet the “rule of three,” the applied AI layer would need to  reach $10 trillion, according to Fundrise. That is the bear case at this point, and the result would still be a 10x increase in the number of companies that matter at the application layer. We expect there will be even more market-making companies.

This is driven in part by advances in technology. Right now, there is a marked improvement in analytical AI that has provided predictive analytics, and personalized experiences. The ability to learn, pattern-match and make recommendations is transforming how we interact. At the same time, the leap ahead made by generative AI is embedding conversational experiences that generate content and complete complex tasks across the web.

Together, this adds up to a new wave of cognitive compute that will make machines a closer partner to humans in many tasks that are already tech-enabled, presenting myriad opportunities to fully automate tasks at the application layer.

It’s Only the Beginning for Applied AI

This convergence has already caused a massive market response. As of this writing, Nvidia is worth $3 trillion, far outpacing past waves, where chips didn’t cross the trillion-dollar threshold. Yet even with this record-breaking rise, there are signs that the intensive CapEx investment needed for compute and power and commoditization could challenge growth in this layer over time. Similar to past cycles, most investment dollars and attention are largely flowing into the chip and general tech layers today. Most of these investments are made in later-stage venture deals or the public markets.

Recent history indicates that we are only at the beginning of the value creation story, and that there is plenty of greenfield ahead. Similar to past waves, at this point the application layer is largely untapped, and now there are signs of even greater promise ahead. The sheer excitement around the release of ChatGPT in 2022 indicated there is huge excitement in the market for generative AI’s cognitive capabilities. ChatGPT also sent signals that AI will unlock new levels of value creation.

According to a study by UBS, OpenAI’s ChatGPT reached 100 million users in just two months, making it the fastest-ever consumer app to reach the milestone. By contrast, TikTok took nine months to reach the same user base, while Instagram took 2.5 years. It amassed users at a greater scale than some of the leading names in technology, such as Netflix and Microsoft, according to FlexOS.

ChatGPT marked the moment when the potential energy of technology converted to the kinetic energy of innovation, where capabilities and markets collide to send momentum hurtling ever-forward, and resetting expectations. In the first month of 2025, ChatGPT’s first-mover advantage appeared to evaporate overnight, when DeepSeek released a chatbot that seemed engineered as a counterargument to ChatGPT. DeepSeek’s arrival laid bare the power of open source, the commoditization reality of the foundational models, and the price leverage that companies building in the applied layer will have. That happened in 2025, in a single day.

ChatGPT may be a tale of two chatbots, but many of the questions that DeepSeek raised are directed to the underlying models, and will be ajudicated by publicly-traded companies at the general tech layer. By showing the potential of a different approach, DeepSeek sketched the contours of a competitive landscape in foundational models, and that will provide Applied AI companies with the advantages in choice, differentiation, and cost going forward.

Winners of the last era provide a tailwind to the creation of new markets at the application layer. Today, all of the major tech companies, including Meta, Google, Microsoft (via its OpenAI investment), Apple, and Amazon are early movers, building models, working out the associated questions, creating initial product integrations, and validating demand for AI in the market. The application layer companies will find opportunities to build businesses and benefit from network effects, even as they are more focused on specific problems, and creating new avenues of value. Currently, the bulk of investment is flowing toward established players in the public markets, where growth is steadier and the price of entry is higher. But these companies are effectively seeding the market for future growth, even as they begin to build applications. Apple may have its own iPhone apps, but today even the company itself trumpets the fact that nearly all of the $1 trillion generated by App Store sales accrue to independent businesses.

Anchored by technology that can be more impactful to a wider swath of society and performs at a higher level, the AIera’s cycles of disruption will move faster. Categories will be redefined and created. At Grit Capital Partners, our team draws on our experience through these previous eras and an understanding of how technology meets value to identify pioneers that will redefine categories, and create new markets. 

Cycles of disruption will continue to move faster, providing another driver of increased entrepreneurship, and category creation. At the seed stage, the applied layer presents the largest opportunity. This will be where AI interacts with customers, and investments today can transform into a position in a category leader tomorrow.