It’s more like a VCR than a karaoke machine in my opinion.
Like a VCR it can be used for copyright infringement.
Unlike a karaoke machine that has copyrighted material the entire point of purchasing the karaoke machine is to get copyrighted songs to sing.
The VCR, like the LLM, has other uses, and if someone distributes infringing VCR cassettes they are liable and the manufacturer is not.
VCRs being applicable because of Sony v Universal.
https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Unive....
The Court also ruled that the manufacturers of home video recording devices, such as Betamax or other VCRs (referred to as VTRs in the case), cannot be liable for contributory infringement.
Also, it can be argued that the LLM model is significantly transformative.
https://en.wikipedia.org/wiki/Transformative_use
In United States copyright law, transformative use or transformation is a type of fair use that builds on a copyrighted work in a different manner or for a different purpose from the original, and thus does not infringe its holder's copyright.
In computer- and Internet-related works, the transformative characteristic of the later work is often that it provides the public with a benefit not previously available to it, which would otherwise remain unavailable.
Which is what was argued in Perfect 10 v Google.
https://en.wikipedia.org/wiki/Perfect_10,_Inc._v._Amazon.com....
Specifically, the court ruled that Google transformed the images from a use of entertainment and artistic expression to one of retrieving information, citing the precedent Kelly v. Arriba Soft Corporation. The court reached this conclusion despite the fact that Perfect 10 was attempting to market thumbnail images for cell phones, with the court quipping that the "potential harm to Perfect 10's market remains hypothetical."
The court pointed out that Google made available to the public the new and highly beneficial function of "improving access to [pictorial] information on the Internet." This had the effect of recognizing that "search engine technology provides an astoundingly valuable public benefit, which should not be jeopardized just because it might be used in a way that could affect somebody's sales."
So an LLM is a tool that could be used to produce infringing material, like a VCR, and an LLM is a tool that does indeed copy infringing material, like Google Image search, but applies computationally expensive transformations used to generate newly existing functionality that has a valuable public benefit distinct from creating and distributing the original infringing copies. That new, visually non-infringing images could compete with the originals in a market is not the intent nor spirit of the clause related to market impact as that would imply that all paintings of a red circle have a market impact on all paintings of a blue circle where clearly the intent of copyright is to protect a concrete and subjective expression whose market value differs from image to image.