TITLE: Global Investors Bet on Chinese AI Amid U.S. Bubble Fears

Global Investors Shift to Chinese AI as Wall Street Faces Bubble Risks

Global investors are ramping up investments in Chinese artificial intelligence companies, seeking diversification amid growing concerns over a potential speculative bubble in U.S. AI stocks. Beijing's aggressive drive for technological self-reliance is accelerating this trend, with fast-tracked listings of domestic chipmakers drawing significant capital.

Foreign investors view China as rapidly closing the technological gap with the United States, bolstered by government support for AI development. This comes as U.S.-listed AI giants face scrutiny for elevated valuations. The tech-heavy Nasdaq composite index trades at 31 times forward earnings, compared to 24 times for Hong Kong's Hang Seng Tech Index, which includes key AI players like Alibaba, Baidu and Tencent.

U.K.-based asset manager Ruffer has deliberately limited its exposure to the "Magnificent Seven" U.S. tech giants and is increasing positions in Alibaba to capture China's AI growth. "While the U.S. remains the leader in frontier AI, China is rapidly narrowing the gap," said Gemma Cairns-Smith, investment specialist at Ruffer. "The moat may not be as wide, or as deep, as many think. The competitive landscape is shifting."

Alibaba, a major Chinese tech firm, operates an AI chip unit, develops the large language model Qwen and is investing heavily in cloud infrastructure to support AI applications.

Beijing's Push Fuels AI Independence and Investor Interest

China's quest for AI autonomy, intensified by U.S. export restrictions on advanced semiconductors, has spurred a wave of domestic innovation and public listings. This month, chipmaker Moore Threads, often called "China's Nvidia," debuted on the Shanghai Stock Exchange with a 400% surge on its first trading day. Days later, MetaX Integrated Circuits, founded by former AMD executives, jumped 700% in its Shanghai debut.

These blockbuster listings underscore Beijing's prioritization of semiconductors and AI as strategic sectors. UBS Global Wealth Management rated Chinese technology as the "most attractive" sector in a recent report, highlighting policy backing, self-reliance efforts and swift AI commercialization as key draws for investors seeking geographic diversification.

The rise of startups like DeepSeek, China's counterpart to OpenAI's ChatGPT, has further ignited investor enthusiasm. A flurry of AI-related initial public offerings on mainland China and Hong Kong exchanges is tapping into this momentum.

ETF Growth Signals Surging Demand for Chinese Tech

Exchange-traded funds focused on Chinese technology have seen explosive growth this year. KraneShares' CSI China Internet ETF (KWEB), which invests in offshore-listed Chinese stocks including Tencent, Alibaba and Baidu, has risen by two-thirds in 2025, swelling assets under management to nearly $9 billion.

Another KraneShares ETF targeting onshore Chinese tech stocks, including chipmakers Cambricon, Montage Technology and Advanced Micro-Fabrication Equipment, has also expanded significantly.

U.S.-based investment adviser Rayliant Global Advisors launched a Nasdaq-listed ETF in September (CNQQ) in partnership with China Asset Management Co. The fund targets "transformative" Chinese tech stocks akin to U.S. leaders like Google, Meta, Tesla, Apple and OpenAI, with holdings including Cambricon.

"The rapid ascent of Chinese AI chipmakers like Cambricon speaks to the scale and speed of innovation across China's AI and semiconductor industries," said Brendan Ahern, chief investment officer at KraneShares. He attributed the surge to the urgency of the U.S.-China tech rivalry, likening it to "yelling fire" that draws intense attention.

Jason Hsu, founder of Rayliant, noted China's strengths in engineering, manufacturing and power supply complement U.S. advantages in innovation. U.S. restrictions, he said, have compelled China to invest heavily in core technologies. "For investors, the prudent strategy is to capture AI opportunities and manage uncertainty through diversification," Hsu added.

Cautions Amid Hype and Geopolitical Tensions

Despite the optimism, some fund managers warn that much of the recent activity is driven by speculation rather than fundamentals. Kamil Dimmich, partner and portfolio manager at North of South Capital in the U.K., said none of the newly listed Chinese chip companies have sustainable valuation support and are "almost entirely driven by hype."

His fund holds positions in Alibaba and Baidu, which have invested less in AI compared to U.S. counterparts. Carol Fong, group CEO of CGS International Securities, advised selective exposure to companies benefiting from China's self-reliance initiatives in AI and semiconductors, while maintaining holdings in global leaders.

Investors are hunting for potential leaders in high-tech areas like robotics and AI, where policy clarity and relative value compared to Western firms are appealing, Fong said. She anticipates continued inflows but urged balancing portfolios amid the fragmented, geopolitically influenced chip market.

The U.S.-China tech war continues to shape investment flows, with China's policy responses creating opportunities even as risks persist. As valuations diverge, the appeal of Chinese AI as a counterweight to Wall Street's frothiness grows.