Bank of America Issues Risk Warning for China's Artificial Intelligence Stocks

Bank of America reported that China's self-reliance drive in technology is creating new investment opportunities in artificial intelligence stocks, but soaring valuations and geopolitical tensions are increasing risks in the sector.

China's Technology Drive

China's efforts to achieve self-reliance in technology are paving the way for new investment opportunities in artificial intelligence stocks. Winnie Wu, Head of Asia-Pacific Equity Strategy Research at Bank of America, stated at a press conference in Hong Kong that domestic players are closing gaps in technology standards and making tangible progress.

Semiconductor and Hardware Groups

The bank divided Chinese AI stocks into three groups with varying risk-return profiles. Semiconductor equipment manufacturers and memory chip companies are relatively insulated from U.S. AI investments because they serve the domestic market; however, valuations for these stocks range between 50 and 150 times earnings.

Global Suppliers and Hardware

Chinese suppliers in the second group, which contribute to global AI infrastructure such as optical components and printed circuit board manufacturers, trade at lower valuations ranging from 20 to 40 times earnings. These companies face additional risks due to their high exposure to U.S. AI capital expenditures.

Artificial Intelligence Applications

Investors are adopting a more cautious approach toward AI applications in the third category, ranging from large language models to humanoid robots, due to the lack of a clear 'killer application' and low switching costs.

Investment and Spending Forecasts

Bank of America projects that China's AI capital expenditures will surge from $90 billion in 2025 to $330 billion by 2030, as investments in IT infrastructure trigger demand in areas such as power equipment and energy storage.