CNBC's The China Connection newsletter: Foreign investors warm to China’s cheaper AI valuations despite fears of a U.S. bubble

Sitting successful his caller Beijing office, AI2 Robotics Founder and CEO Eric Guo wistfully reflected connected fundraising challenges successful China — and noted that U.S.-based humanoid rival Figure precocious raised $1 cardinal successful a azygous round, astatine a $39 cardinal valuation.

That's acold much than what a Chinese robotics institution tin typically raise, helium said.

His strategy for growth? Do much with less.

That means, for instance, processing a robotics AI exemplary that uses little than 10% of the parameters required to bid Alphabet's RT-2 AI model, arsenic laid retired successful 1 of Guo's wide cited papers. Guo, who holds a Ph.D. from Purdue University, antecedently worked astatine Microsoft, smartphone shaper Oppo and electrical conveyance institution Xpeng.

It mirrors however DeepSeek and different Chinese players person slashed AI costs for users, and allowed them to assertion AI improvement budgets acold beneath OpenAI's estimated spending, which has exceeded $100 billion. That strategy is capable to marque AI2 Robotics 1 of China's hottest concern targets.

The Shenzhen-based startup deed a $1 cardinal valuation this fall, reaching unicorn presumption conscionable implicit 2 years aft motorboat — acknowledgment to a whopping 9 fundraising rounds truthful acold this year, according to a idiosyncratic acquainted with the matter.

The hot U.S. AI trade has shifted to Alphabet this week pursuing rave reviews of its newest AI exemplary — conscionable weeks aft Warren Buffett's Berkshire Hathaway disclosed a rare tech position successful the stock. Michael Burry, known for calling the U.S. lodging clang earlier 2008, was the latest voice to pass of bubble risks successful U.S. AI names that person powered caller marketplace gains connected Monday.

But whatever's bubbling up successful China's tech sector, it pales successful examination with the U.S.

U.S. task deals successful AI and robotics person much than quadrupled since 2023 to transcend $160 cardinal truthful acold this year, according to a CNBC investigation of PitchBook data.

Comparable deals successful China this twelvemonth are conscionable implicit $10 cardinal — lone somewhat much than the $9.24 cardinal recorded successful 2023, the information showed.

It's a confluence of regulatory pressures successful China, U.S. export controls and a scrappy startup situation wherever locals person flooded stringent pandemic lockdowns to enactment competitive.

Global investors are progressively interested.

Bubble risks for Chinese AI firms look acold much contained than successful the U.S., said Vincent Lu, spouse and caput of backstage equity astatine Australian plus manager Boman Group. The Melbourne-based steadfast oversees AU$910 cardinal ($591.26 million), mostly allocated successful Australia and North America, and has participated successful backing rounds for U.S.-based Anthropic earlier this year and OpenAI past year.

Lu was "so intrigued" by China's AI and robotics country that helium moved backmost to Shanghai from Melbourne past twelvemonth to scout deals, and is conscionable starting to get superior astir a few. Chinese companies' AI valuations are astir one-quarter of their American peers, portion benefiting from little probe and improvement costs, helium added.

Boman's Lu was conscionable 1 of galore investors astatine the AVCJ forum successful Hong Kong past week who told CNBC however excited they were astir however cheaply priced Chinese AI startups are compared to those successful the U.S.

It marks an ongoing betterment successful overseas capitalist interest successful China pursuing Beijing's crackdown connected ample net tech companies successful caller years, coupled with Washington's scrutiny of China-related investments.

This period alone, astatine slightest 3 China-based funds with an AI absorption person raised superior denominated successful U.S. dollars from overseas investors:

• Monolith Capital, which backed DeepSeek's rival Moonshot AI, raised $488 million for 2 funds — 1 denominated successful Chinese yuan and the different successful U.S. dollars — without disclosing a breakdown. Foreign participants successful the U.S. dollar money included institutions successful the U.S., Singapore, Europe and the Middle East, a institution typical told CNBC.
• Source Code Capital, the VC steadfast down ByteDance and Meituan, raised adjacent much — $600 million.
• Blue Pool Capital, backed by Alibaba co-founder Joe Tsai, is targeting $750 million for its archetypal money to pat outer superior for nonstop investments, according to the Financial Times.

Venture firms rise superior from extracurricular investors, known arsenic constricted partners, earning yearly fees arsenic they enactment that wealth to enactment successful startups. Once the startups spell nationalist oregon are sold astatine higher valuations, the VC firms tin "exit" and stock the returns with their constricted partners.

The momentum is building, adjacent if the numbers don't look large yet. Monolith claimed investors sought to perpetrate much than $600 cardinal to its latest fundraising round, but it kept the archetypal headdress of $488 million.

Funds of this size would person been "inconceivable" conscionable a twelvemonth ago, said Johnny Zhu, co-head of Primavera Venture Partners, adding that American capitalist sentiment toward China is seeing a "clear recovery," helped by comparatively disposable exit paths.

While Chinese companies person yet to resume IPOs successful the U.S., they person flocked to Hong Kong, turning its banal speech into the world's largest listing destination this year.

Even so, banal investors are comparatively much cautious connected China than the U.S.

The Hang Seng Index, which includes AI heavyweights Alibaba and Tencent, is up astir 30% truthful acold this year, but trades astatine a humble 13.61 price-to-earnings ratio, according to FactSet data. The Nasdaq Composite, successful contrast, trades astatine a 33.8 ratio, with the scale up astir 20% truthful acold this year.

Trump-Xi call. The U.S. and Chinese presidents connected Monday nighttime signaled that a one-year commercialized truce is intact, conscionable arsenic tensions flare betwixt Beijing and Tokyo over Taiwan.

Japanese concerts get canceled. At slightest 2 performances successful Beijing were abruptly canceled past week amid China's expanding pushback against Japan's high-profile Taiwan comments.

Alibaba AI app downloads surge. The company's caller Qwen app reported much than 10 cardinal downloads successful a week arsenic its AI pivot gains momentum.

China's CSI 300 roseate 0.74% arsenic of 2:30 p.m. section clip Wednesday. The scale is acceptable to drawback a two-week losing streak, gaining 1.53% truthful acold this week. The benchmark has risen 14.9% truthful acold this year.

Hong Kong's Hang Seng Index climbed 0.25% and is up 2.9% for the week, recovering from past week's diminution amid a planetary tech sell-off. The main banal gauge is up 29.4% twelvemonth to date.

The offshore yuan past traded astatine 7.077 against the dollar, its strongest level since October 2024.

— Nur Hikmah Md Ali

The show of the Shanghai Composite implicit the past year.

Nov. 26: Li Auto to merchandise quarterly results earlier the U.S. marketplace open

Nov. 27: Industrial profits for October; PopMart's Labubu artifact to join Macy's 99th Thanksgiving Day parade successful New York City

Nov. 30: Official manufacturing and services PMI

Dec. 1: RatingDog China Manufacturing PMI

Dec. 3: RatingDog China Services PMI