Global investors focus on Chinese AI as Wall Street fears bubbles

[HONG KONG/NEW YORK] Investors around the world are increasing their bets on Chinese artificial intelligence companies and diversifying by betting on the next deep seek, raising concerns on Wall Street about a speculative bubble in the sector.

Demand for Chinese AI companies is also fueled by the Chinese government's push for technological independence. China is rushing ahead with blockbuster listings, especially Moore Thread, which has been dubbed “China's Nvidia,” and chip makers, both of which debuted this month.

Foreigners see China narrowing the technology gap with the U.S. as concerns grow over the high valuations of U.S.-listed AI stocks, with the Chinese government stepping up support for AI chip makers and accelerating bets on Chinese companies.

For example, UK-based asset manager Laffer said it had “deliberately limited” its exposure to the Magnificent Seven (a US tech giant) and was considering adding a position in Alibaba to increase its exposure to Chinese AI themes.

“While the US remains the leader in frontier AI, China is rapidly closing the gap,” said Gemma Cairns-Smith, investment specialist at Ruffer. “The outer moat may not be as wide or deep as many people think…The competitive landscape is changing.”

Laffer has access to the AI ​​subject through Chinese tech giants such as Alibaba, which operates an AI chip unit, owns the large-scale language model Qwen, and is pouring money into cloud infrastructure.

Global asset managers are increasingly eyeing Chinese AI companies as a wave of mainland and Hong Kong startups list, seeking to capitalize on surging investor appetite following the rapid rise of DeepSeek, China's answer to ChatGPT.

Tech wars stimulate demand

UBS Global Wealth Management rated Chinese technology as the “most attractive” in a report this month, citing investors' search for geographic diversification and China's “strong policy backing, technological independence and rapid AI monetization.”

The tech-heavy Nasdaq currently has a P/E ratio of 31 times, but Hong Kong's Hang Seng Tech has a P/E ratio of 24 times, allowing bets on AI to be made through stocks such as Alibaba, Baidu, Tencent and chip foundry SMIC.

Building on this momentum, U.S. investment adviser Rayliant in September helped launch a Nasdaq-traded fund that would give investors access to “Chinese versions of stocks such as Google, Meta, Tesla, Apple and Open AI.”

Brendan Ahern, chief investment officer at CraneShares, said the rapid rise of Chinese AI chip makers such as Cambricon speaks to the scale and speed of innovation across China's AI and semiconductor industries.

“Elements of this competitive narrative, this urgency, are in the interest of companies,” he said, referring to the fierce China-US tech war.

“It's like a fire cry, right? When you make it an emergency, you get a lot of attention.”

CraneShares' exchange-traded fund (KWEB), which invests in offshore-listed Chinese stocks including Tencent, Alibaba and Baidu, has surged by two-thirds this year to nearly $9 billion.

Another CraneShares ETF, which invests in Chinese land-based tech stocks such as chipmaker Cambricon, Montage Technology and Advanced Microfabrication Equipment, also grew this year.

Jason Su, founder of US-based Rayliant Global Advisors, said that in the AI ​​race, the US has an advantage in innovation, while China has an advantage in engineering, manufacturing and power supply.

Rayliant has partnered with China Asset Management to launch a Nasdaq-listed ETF that bets on Chinese stocks with innovative technologies such as Cambricon.

U.S. technology regulations “now force China to pour money into hard technology and invent it from scratch,” Su said. “For investors, the smart and prudent strategy is to seize the AI ​​opportunity and manage uncertainty through diversification.”

driven by hype

MetaX Integrated Circuits, a Chinese AI chipmaker founded by former AMD executives, soared 700% in its Shanghai market debut last week, just days after major rival Moore Threads debuted with a 400% rise.

However, some global fund managers say China's technology potential and foreign inflows remain limited.

“None of the currently listed semiconductor companies have any valuation support and are driven almost entirely by hype,” said Kamil Dimich, partner and portfolio manager at UK-based North of South Capital.

Mr. Dimich's fund owns stocks such as Alibaba and Baidu, but both companies have invested far less in AI development than U.S. companies.

Carol Fung, group CEO of CGS International Securities, said investors should keep global leaders in their portfolios while selectively adding companies that have benefited from China's push for “independence” in AI and semiconductors.

“High-tech fields such as robotics and AI are looking for potential leaders who see clearer policy direction and relative value compared to Western countries,” Fung said, predicting a further influx of talent.

Investors “need to balance their exposure in the current fragmented and geopolitically driven tipping cycle,” he said. Reuters