"The bet was that by the following year, the application inference would cost 90% less, creating a $160 gross profit (+80% gross margins). But this didn't happen, instead of declining the application inference costs actually grew!"

This doesn't make any sense to me. Why would Cursor et al expect they could pocket the difference if inference costs went down? There's no stickiness to the product; they would compete down to zero margins regardless. If anything, higher total spend is better for them because it's more to skim off of.