Building GPT-3 powered applications with OpenAI and Next.js can be done using either serverless functions or Edge Functions. The former has limitations such as long response times, which can lead to poor user experience and timeout issues on certain Vercel plans. In contrast, Edge Functions offer a more lightweight runtime, faster execution, and longer timeouts, making them ideal for applications that require real-time data streaming. By using Edge Functions with streaming, developers can improve the user experience by incrementally displaying generated data as it comes in, rather than waiting for the entire response. This approach also enables the use of OpenAI's GPT-3 model without hitting serverless function timeouts, making it a more cost-effective and efficient solution for building high-performance AI-powered applications.