As the global artificial intelligence (AI) race intensifies, Asian hedge funds are turning their attention to Chinese tech giants like Xiaomi and Baidu, betting on their innovations despite potential U.S. restrictions looming in 2025, according to Reuters. While the U.S. ban on advanced chip exports has deterred many global investors, some fund managers see opportunities in China’s expanding AI ecosystem and the undervalued nature of its tech stocks compared to their U.S. counterparts.
AI Adoption in Everyday Life
China’s vast domestic market of 1.4 billion people provides a fertile ground for AI integration into daily life. From smartphones and wearable technology to social media apps and gaming, AI adoption is accelerating. Nilesh Jasani, founder of GenInnov Funds, highlights how quickly Chinese innovations reach end-users, driving interest in companies like Xiaomi and Baidu.
Baidu, China’s leading search engine, has been a front-runner in AI advancements. The company recently launched a text-to-image tool for advertisers and plans to roll out AI-powered glasses and expand its robotaxi service internationally next year. Similarly, Xiaomi’s edge AI technology, powered by its self-developed HyperOS, positions it as a strong competitor in the Internet of Things (IoT) and smart vehicle sectors, according to Timothy Wang, Chief Investment Officer at Monolith Management.
Chinese AI Advancements
While Chinese tech stocks have underperformed compared to U.S. counterparts in the global AI boom, Hang Seng Tech Index and CSI AI sector have risen 19% and 21%, respectively, versus Nasdaq 100’s 30% growth, fund managers remain optimistic about China’s potential. Wang attributes this to the commercialization of large language models, robust supply chains, and a deep pool of skilled product developers.
Breakthroughs in AI software are also noteworthy. ByteDance’s AI chatbot Doubao became the second most popular AI application globally in November, with 60 million monthly active users, trailing only ChatGPT. Additionally, Chinese AI models rank highly on platforms like Hugging Face, reflecting their growing global influence.
Challenges Ahead
Despite the optimism, skepticism remains. U.S., Taiwanese, and Japanese semiconductor stocks dominate tech portfolios due to their strong financial performance. Andy Maynard of China Renaissance Securities notes that Chinese companies are still lagging in monetizing AI innovations at a listed company level, a hurdle that needs addressing for sustained growth.
As hedge funds place their bets, the coming years will reveal whether Chinese tech can bridge the gap in global AI leadership while navigating geopolitical and economic challenges.
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