However, what the product is creating, the output, is an AI generated Image... Which because it wasn't human authored, is automatically put into the public domain the moment it's created.
The product is copyrighted, the output is not.
The courts will sort out the boundaries of copyright here, but I'll eat my shorts if it's as extreme as the "all things that come out of AI are public domain" crowd thinks.
If your input was a six word prompt of everyday langhage and the widely available magic box decompressed that into a cool picture, nobody produced anything copyrightable. And most of us wouldn't want that to be different. You'd just have squatters racing to claim copyright over every Midjourney prompt they can generate.
But if someone put what's clearly a demonstrably significant amount of commercial direction or artisanal effort into producing a original work while using generative tools, that direction/effort is what earns your copyright. The same would likely apply when using the tech to further "work" some already-copyrighted material of your own.
You're right that most of this stuff hasn't been tested by the courts when the tools are called "AI", but many of the underlying questions have decades and decades of precedent behind them (music sampling, collage and assemblage in visual art, monkeys taking snapshots, etc). Regulators do and lawyers will be making their cases about AI copyright in reference to those earlier, analogous, cases.