Investors in new technologies can increasingly look to China for new opportunities as it plays catch up with the US in the AI race.
Instead of trying to be innovative in terms of inventing a different type of algorithm, many Chinese companies are adapting existing work and trying to replicate the success of GPT, and doing it domestically, explained Frank Wan, Shanghai-based analyst at Fidelity International.
Often this comes down to enhancing existing verticals, he added, such as making software easier for users to interact with by enabling better speech recognition.
However, from an investor’s perspective, this makes it important to be very selective in this environment. “While we can see lots of use cases for AI in China, what’s less clear is the ability to monetise those capabilities,” Wan said.
For now, he added, it’s difficult to predict whether it’s realistic to charge a customer more just for enhancing functionality.
Supportive policy
On a positive note, efforts by both the Chinese government and Chinese companies to narrow the gap with US AI technology are supported by recently launched policies – whose aim is to coordinate the efforts of Chinese companies to promote technology development and get ahead in this field.
“I think [policies] will be accommodative,” said Wan. “We just saw regulators in China announce the first batch of 41 approved AI algorithms. The approval came faster than I expected and included algorithms from most of the major local Chinese Internet companies.”
He believes this shows authorities are working fast to give people the necessary approvals. “I don’t see this as a barrier to entry, I think it’s a supportive signal from the government.”
Speed is important given the US ban on exports of advanced chips, which is slowing down progress in China. For example, explained Wan, the same algorithm that takes US companies one week to train may take two or three weeks for a Chinese company.
Staying selective
Yet this reinforces the need for investors to stay focused on a few companies. Wan pinpoints the software space as one to watch, and only where there is evidence of a concrete use case with a clear path to monetisation.
This is particularly important given that the run-up in valuations of Chinese AI stocks in recent months has created a bubble for certain stocks.
For example, Wan said that a company which claimed it would create its own large language models saw its stock price roughly triple in a matter of weeks before its largest shareholder sold off some of the stock.
“Don’t get me wrong, I think there will be some real winners out there, amid all these so-called ‘AI theme stocks’ in China,” he added. “But expectations overall are just pretty high at the moment.”
