A Bloomberg gauge, which tracks 30 Chinese tech stocks that have the biggest overseas revenue exposure, has given a return of 36% this year compared to 9% for those firms that are more dependent on local sales. Another measure of the export-oriented companies’ outperformance over the other group points towards the strongest-ever reading this year.
The contrast is partly a result of Beijing’s ambitions to build its own AI ecosystem. The campaign for self-sufficiency has led to intense international competition and a price war that has eroded profit margins on robotics to chips. Meanwhile, Chinese firms that are export-oriented have thrived on surging demand globally for AI infrastructure such as data centres.
China’s AI industry’s future is back in the spotlight this week prior to a closely-watched summit between US President Donald Trump and his Chinese counterpart Xi Jinping. All eyes are on if the two nations can put guardrails around the disruptive tech amid a heated race for international dominance.
CLSA’s Elinor Leung told Bloomberg that domestic competition is tough no matter the industry and if one can sell globally, the margin is much higher.
Optical component makers Zhongji Innolight Co and Eoptolink Technology Inc are among the big winners of China’s AI export boom. Both derive over 90% of their revenues overseas and both stocks have rallied around 50% this year, each.
Fueling the gains are a strong outlook for international AI spending. Nvidia Corp’s CEO Jensen Huang recently said he expected the firm to sell twice as many chips in the coming year, while the initial success of Meta Platforms’ new AI genet gives further evidence that demand for semiconductors as well as computing power would likely remain robust.
Many emerging-market funds stay underexposed to China’s localization trade and they favour exporters leveraged to the US AI capital expenditure cycle, Bank of America stated in a note last week, Bloomberg reported.
Shares of leading Chinese AI designer Moore Threads Technology, which generates nearly all its sales locally, is down around 25% this year. Meanwhile, shares of AI tools developer SenseTime Group Inc, with more than 90% of its sales derived locally, have declined over 40%.
Social media firm Kuaishou Technology, which is also an AI video business and generates less than 5% revenue overseas, has fallen around 5%.
To be sure, some observers still consider the China AI localization trade valid at a time of unabated geopolitical uncertainties that may hurt exports.
Morgan Stanley’s analysts, for one, wrote in a note last week that AI sovereignty and semiconductor localization remain structural opportunities for Chinese equities regardless of the outcome of the upcoming summit, while AI infrastructure, biopharmaceuticals and other cross-border sectors are most vulnerable to a re-escalation of geopolitical tensions.
Still, others say the race-to-the-bottom style of competition, known in China as involution, is far from over and will continue to plague domestically oriented AI firms.
Bank of America’s co-head of China equity research Matty Zhao said that in a few industries the domestic demand is already well-served, or there could even by excess supply. Against this backdrop, the ability to export or grow globally can be an important differentiator, Zhao said, Bloomberg reported.
With inputs from Bloomberg