I'd wager on the second scenario. Anyone who's been paying attention to the industry knows that most of the 'gains' have come from test-time compute and architecting harnesses in novel ways. In my estimation, capability increases from "pre-training" alone died early last year, and we're now probably seeing test-time and other benchmark hacks approaching their limit as well.

If you zoomed back to late-2024, people in the industry were predicting how we'd have AGI by now and the economy would've already 'taken off' with massive productivity growth and ushering in of great prosperity ('deflationary spiral'). Where is it? Where is the productivity growth? Where is the deflationary spiral?

To be fair, models have gotten better in jagged ways, but reliability is far from usable, especially in long duration tasks, and there has been no effort by the AI companies to address the human brain's bandwidth bottleneck -- they hit the gas like there's no tomorrow and we have enormously capable but jaggedly intelligent multi-modal models with agentic capabilities that are only as effective as the human using it. This whole thing has become a giant mess.