Chinese Internet Giants Set to Reap Artificial Intelligence Profits in 2 to 3 Years, According to UBS Analysts
Chinese tech giants are expected to capture a larger share of the artificial intelligence market in the coming period, thanks to their extensive databases and user bases.
UBS analysts stated that as capacity constraints ease and pricing power shifts downward, Chinese internet giants will capture a larger share of artificial intelligence profits within two to three years.
AI Investments and Market Cycle
Kenneth Fong, head of China internet research at UBS, stated that macroeconomic challenges have driven investors to be cautious and that hardware expenditures have reduced short-term profits.
It was emphasized that as capacity constraints shift from moving upward to downward distribution power, internet companies will begin generating earnings again.
Capital Expenditures of Tech Giants
Chinese tech giants increased their capital expenditures in the last quarter to avoid falling behind in the field of artificial intelligence, experiencing declines in their free cash flows.
While Tencent Holdings nearly tripled its capital expenditures in the second quarter, Alibaba Group Holding also recorded significant cash outflows in the June quarter.
Comparison with Global Competitors
It was stated that the total expenditures of Chinese tech firms lag behind their US counterparts due to restrictions on access to advanced foreign chips.
Conversely, it was expressed that Chinese artificial intelligence labs and tech giants possess a distinct advantage in cost efficiency.
Cost Advantage and Profit Margins
UBS Securities analyst Xiong Wei disclosed that the training costs of models in China are less than 10 percent of those of global leaders.
It was noted that Chinese model developers are not operating at a loss; rather, they maintain healthy gross profit margins and enhance their profitability through technological innovations.