Foreign investors welcome China’s cheaper AI valuations

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Sitting in his new Beijing office, AI2 Robotics founder and CEO Eric Guo reflected wistfully on China’s fundraising challenges — and noted that its U.S.-based humanoid rival, Figure, recently raised $1 billion in one go, at a valuation of $39 billion.

That’s far more than a Chinese robotics company can typically muster, he said..

Its growth strategy? Do more with less.

This means, for example, developing a robotic AI model that uses less than 10% of the parameters required to train Alphabet’s RT-2 AI model, as outlined in one of Guo’s widely cited papers. Guo, who holds a Ph.D. from Purdue University, previously worked at Microsoft, smartphone maker Oppo and electric vehicle company Xpeng.

This reflects how DeepSeek and other Chinese players have lowered AI costs for users and allowed them to claim AI development budgets well below OpenAI’s estimated spending, which exceeded $100 billion. This strategy is enough to make AI2 Robotics one of China’s most popular investment targets.

The Shenzhen-based startup reached a billion-dollar valuation this fall, reaching unicorn status just over two years after its launch – thanks to nine fundraising rounds so far this year, according to a person familiar with the matter.

The hot AI business in the United States has shifted to Alphabet this week, following rave reviews of its new AI model – just weeks after Warren Buffett’s. Berkshire Hathaway revealed a rare technological position in the title. Michael Burry, known for talking about the US housing crash before 2008, was the latest voice to warn of bubble risks in US AI names that fueled recent market gains on Monday.

But whatever is happening in China’s tech sector pales in comparison to the United States.

U.S. venture deals in AI and robotics have more than quadrupled since 2023 to exceed $160 billion so far this year, according to a CNBC analysis of PitchBook data.

Comparable deals in China this year amount to just over $10 billion, barely more than the $9.24 billion recorded in 2023, the data shows.

It’s a confluence of regulatory pressures in China, export controls in the United States and a disjointed startup environment where locals have weathered strict pandemic lockdowns to stay competitive.

Global investors are increasingly interested.

Bubble risks for Chinese AI companies appear much more contained than in the United States, said Vincent Lu, partner and head of private equity at Australian asset manager Boman Group. The Melbourne-based company oversees A$910 million ($591.26 million), primarily allocated in Australia and North America, and participated in funding rounds from US firm Anthropic earlier this year and OpenAI last year.

Lu was “so intrigued” by China’s AI and robotics scene that he returned to Shanghai from Melbourne last year to seek contracts, and is only just starting to take a few seriously. The valuations of Chinese AI companies are about a quarter of those of their U.S. counterparts, while benefiting from lower research and development costs, he added.

Boman’s Lu was just one of several investors at the AVCJ forum in Hong Kong last week who told CNBC how excited they were about how cheap Chinese AI startups are compared to those in the United States.

It marks a surge in foreign investor interest in China, following Beijing’s crackdown on major internet technology companies in recent years, coupled with Washington’s increased scrutiny of China-linked investments.

This month alone, at least three China-based AI-focused funds have raised US dollar-denominated capital from foreign investors:

• Monolith Capital, which backed DeepSeek rival Moonshot AI, raised $488 million for two funds – one denominated in Chinese yuan and the other in US dollars – without disclosing details. Foreign participants in the U.S. dollar fund included institutions in the United States, Singapore, Europe and the Middle East, a company representative told CNBC.
• Source Code Capital, the venture capital firm behind ByteDance and Meituan, raised even more: $600 million.
• Blue Pool Capital, backed by Alibaba co-founder Joe Tsai, is targeting $750 million for its first fund to tap external capital for direct investments, according to the Financial Times.

Venture capital firms raise capital from outside investors, called limited partners, who earn annual fees when they put that money toward startups. Once startups go public or sell at higher valuations, venture capital firms can “exit” and share the profits with their backers.

The dynamic is taking shape, even if the numbers do not yet seem huge. Monolith said investors were looking to commit more than $600 million in its latest fundraising round, but that it had kept the original cap of $488 million.

Funds of this size would have been “inconceivable” just a year ago, said Johnny Zou, co-head of Primavera Venture Partners, adding that U.S. investor sentiment toward China is seeing a “clear recovery,” helped by relatively visible exit routes.

While Chinese companies have yet to resume IPOs in the United States, they have flocked to Hong Kong, making its exchange the world’s largest listing destination this year.

However, equity investors are relatively more cautious about China than the United States.

THE Hang Seng Indexwhich includes AI heavyweights Alibaba And Tencentis up nearly 30% year to date, but trades at a modest price-to-earnings ratio of 13.61, according to FactSet data. The Nasdaq Composite, on the other hand, is trading at a ratio of 33.8, up almost 20% year to date.

Young Liu, chairman of Hon Hai Technology Group, compared talk of an AI bubble to an Internet bubble and said the world’s biggest tech companies will ultimately be linked to AI.

EQT Asia President Jean Eric Salata and CEO Per Franzen discussed the company’s direction in Asia, outlining the strategies it is pursuing in the region.

Joey Wat, CEO of Yum China, said the company plans to accelerate store openings in China and that the country’s urbanization is not yet complete.

Trump-Xi call. The U.S. and Chinese presidents signaled late Monday that a yearlong trade truce was intact, just as tensions flared between Beijing and Tokyo over Taiwan.

Japanese concerts are canceled. At least two performances in Beijing were abruptly canceled last week due to China’s growing reluctance over Japan’s high-profile comments on Taiwan.

Alibaba AI app downloads are increasing. The company’s new Qwen app has seen more than 10 million downloads in a week as its AI pivot gains momentum.

China’s CSI 300 index rose 0.74% as of 2:30 p.m. local time on Wednesday. The index is expected to end a two-week losing streak, gaining 1.53% so far this week. The benchmark index is up 14.9% so far this year.

that of Hong Kong Hang Seng Index climbed 0.25% and is up 2.9% for the week, recovering from last week’s decline amid a global tech selloff. The main stock indicator is up 29.4% year to date.

The offshore yuan last traded at 7.077 against the dollar, its highest level since October 2024.

-Nur Hikmah Md Ali

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