China's AI Dream Fades as Alibaba, Tencent, PDD Plunge While US Stocks Soar
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Chinese technology stocks are in a freefall despite making major investments in the artificial intelligence (AI) industry.
Top Chinese AI Stocks Have Plunged
Alibaba (NYSE:BABA), a top e-commerce and cloud computing company that has launched several AI models, dropped to $124 on Friday, down by 35% from its highest point last year.
Similarly, Tencent (OTC:TCEHY) stock dropped to $54, its lowest point since April last year. It peaked at $87.7 in October last year.
PDD Holdings (NASDAQ:PDD), an e-commerce company known for its Temu brand, also plunged to $84 from the year-to-date high of $140.
Other Chinese technology companies listed in the US like Baidu, JD.com, and Meituan have either dropped or underperformed their closest rivals. Baidu (NASDAQ:BIDU) stock has jumped by 60% this year, while Alphabet (NASDAQ:GOOG) has soared by 125% in this period.
In contrast, American technology companies are firing on all cylinders, with the blue-chip Nasdaq 100 and S&P 500 indices soaring to their all-time highs.
12 technology companies, including South Korea's Samsung and SK Hynix have entered the $1 trillion club. Advanced Micro Devices (NASDAQ:AMD) may soon enter the club as its market capitalization has jumped to over $840 billion.
Chinese Companies are Pouring Billions in AI
Most Chinese technology companies are pouring billions of dollars into the AI industry. In a statement earlier this year, Alibaba said its AI spending over the next three years will exceed the $56 billion plan it announced in February of last year. While its AI investments are paying off, costs remain a major challenge, as recent results showed that its key profit metric tumbled by 84%.
Tencent's stock crashed after its revenue growth missed analysts estimates, with its gaming revenue slowing during the quarter. It plans to boost its AI investments to over $2.6 billion, funded partly by its dividend cut. Its annual capital expenditure will likely continue rising because of the soaring chip spending.
Most recently, PDD Holdings’ stock plunged after it published a weak earnings report. Its quarterly sales of about $15.65 billion were lower than what analysts were expecting, with the company citing the growing competition.
Chinese AI companies have faced some major challenges in the past few years. The main one is that they have been restricted from buying the advanced Blackwell chips made by Nvidia (NASDAQ:NVDA). The US recently agreed to allow ten of these companies buy the less powerful H200 chips.
These companies are also contending with a highly competitive market where most users prefer using free tools. In contrast, companies like Anthropic and OpenAI are able to charge $17 a month for their tools.
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