China Beats Global AI Fears as Investors Seek Success
US markets are currently experiencing the “AI scare trade,” as investors are offloading shares in software companies and wealth management firms due to worries that swift developments in artificial intelligence may undermine traditional business models. In China, the atmosphere is considerably more positive. Rather than focusing on potential disruptions, investors are pursuing those they view as likely victors, attracted by the growth opportunities presented by AI and its ability to generate cost savings for end users. Local firms that have introduced new models or enhanced existing ones are favored by investors. MiniMax Group Inc. and Knowledge Atlas Technology JSC Ltd., commonly referred to as Zhipu, stand out as significant examples, with their stock price more than doubling in February. Bullish ratings from banks, including Morgan Stanley, are driving the optimism as pure AI plays attract investors away from traditional Internet giants.
“China has been relatively insulated from the AI scare trade because the market is still focused on what AI can aid rather than what it can take away from incumbents,” said Charu Chanana. “In the US, there’s anxiety about rich profit pools getting competed away, while China is still about penetration.” One key reason for the divergence in investor focus is China’s relatively insulated competitive landscape, where regulatory constraints and geopolitical tensions limit foreign participation by AI-related companies. “The divergence between China market participants and global investors reflects how structurally distinct China’s AI landscape is,” stated Gary Tan, a portfolio manager at Allspring Global Investments in Singapore. Foreign large language models “have limited access to the domestic market, giving local model makers a clear run.” MiniMax and Zhipu are gaining traction among investors due to the scarcity of publicly traded global companies that develop LLMs. Both stocks made their debut in Hong Kong in January, with Zhipu shares experiencing a remarkable increase of 524%, while MiniMax stock has risen by 488%. OpenAI Inc. and Anthropic, regarded as leaders in this field, remain unlisted.
Other recently launched Chinese AI-related stocks have also performed admirably in the upswing. Among chip designers, Shanghai Biren Technology Co. shares have risen over 80% since their listing on January 2, while Montage Technology Co.’s stock has experienced a remarkable increase of more than 98% since it began trading on February 9. The Chinese firms are benefiting from a halo effect, as recent private funding rounds for the two pioneers indicate continually increasing valuations — OpenAI is nearing the completion of a fundraising effort exceeding $100 billion, with a valuation potentially surpassing $850 billion, while Anthropic secured $30 billion earlier this month at a valuation of $380 billion. Analysts noted in a Feb. 13 report that new models and the fundraising numbers have contributed to a re-rating. “There is upside to China AI valuations.” Some market observers warn that the re-rating might be challenging to maintain if earnings growth does not align with investor optimism. There is also concern that in focusing on AI champions, investors may be overlooking a more uncomfortable reality: disruption risks that could have implications for a variety of sectors, and thereby hurt corporate earnings across the broader market. Currently, every new AI advancement is perceived by Chinese investors as a driving force, benefiting not just the developers but also the users of these innovative tools. The recent launch of a video-making app by ByteDance, the owner of TikTok, has ignited a surge in film and media stocks. Zhipu has recently unveiled the latest version of its LLM, GLM-5. That outperformed a competing offering from Moonshot AI released just weeks prior, securing the leading position among open-source models globally on the benchmarking platform Artificial Analysis.
According to the Jefferies note, that is the highest ranking a Chinese AI lab has ever achieved. Much of the enthusiasm is associated with DeepSeek, the firm that ignited a worldwide frenzy regarding China’s rapidly advancing AI sector. The firm is anticipated to unveil its next-generation model shortly, a development that has the potential to invigorate the entire sector. There is an expectation that the cost competitiveness of Chinese AI models, including those developed by DeepSeek, may accelerate user adoption. Morgan Stanley, Jefferies, and UBS Group AG have commenced coverage of MiniMax with buy-equivalent ratings. Morgan Stanley forecasts that the firm’s revenue may approach approximately $700 million by 2027, suggesting a potential tenfold increase within the next two years. “Recent China AI model releases have reignited interest in foundation model leaders, and the Morgan Stanley initiation on MiniMax with very aggressive revenue forecasts has reinforced that narrative,” stated Billy Leung. “Money is rotating into pure AI names, while diversified platforms like Alibaba and Tencent are seeing some profit taking.”
