Hong Kong-listed Kingdee and Shanghai-listed Kingsoft Office are emerging as pivotal players in China's burgeoning AI sector, driven by strategic positioning and a strong product lineup. As the global AI landscape evolves, these companies are expected to capitalize on their existing strengths. While Kingdee benefits from a vast customer base of small and medium-sized businesses, Kingsoft Office remains cautious, grappling with uncertainties in its enterprise AI ventures.
Xiaomi, a major player in global edge AI, stands to gain from its robust AI initiatives. The company’s strategic partnerships with Kingsoft Cloud and AI startup MiniMax, along with its in-house AI team, position it well for growth. HSBC analysts have revised their revenue forecasts for Xiaomi, citing anticipated boosts in smartphone and connected home appliance sales, driven by increased AI application availability. J.P. Morgan strategists echo this optimism, predicting a surge in smartphone purchases as AI applications become more accessible.
"The stock is well positioned for a macro recovery should private enterprise budgets resume later in the year, presenting upside to current estimates, with the AI story largely not yet priced in today," said Boris Van and Ting Ming Neo, Bernstein's analysts.
DeepSeek, an open-source AI model from a Chinese startup, has captured the attention of U.S. tech investors with its cost-effective solutions. This innovation underscores China's potential to rival U.S. tech giants in AI development, potentially narrowing the valuation gap between Chinese and American technology firms. The model's affordability and robust data infrastructure are expected to boost the revenue base for AI-enabled applications, offering new growth avenues for companies like Xiaomi.
"DeepSeek shows how some Chinese tech giants can build AI models comparable to U.S. ones, which can be tactically bullish for MSCI China on the back of subdued valuation, light positioning, and recovering earnings cycle," stated Louis Luo, head of multi-asset investment solutions.
Despite the promise of AI innovations, Chinese investors face volatility driven by headline-grabbing developments. The WisdomTree China ex-State-Owned Enterprises Fund (CXSE) reported a nearly 4% increase this year, highlighting a cautious optimism among investors. Liqian Ren from WisdomTree acknowledges potential challenges but notes a growing interest in Chinese equities.
"Before the overarching talk was, China is uninvestible… Now you definitely see people start thinking it probably helps to have China," explained Liqian Ren, leader of quantitative investment at WisdomTree.
David Chao of Invesco highlights the evolving market dynamics, suggesting that while U.S. stocks currently dominate, this trend may shift as investors diversify into markets like China.
"I expect the current high concentration in the US stock market to be a temporary phenomenon," remarked David Chao, global market strategist at Invesco.
"Chinese equities, and especially Chinese technology companies are priced at a steep discount compared to their American counterparts, and similar to the AI development gap narrowing, so too is the valuation gap," Chao added.
Kingdee emerges as a standout choice for investors seeking exposure to AI themes. With its strategic positioning and extensive client base, Bernstein's analysts highlight Kingdee as a preferred pick in this sector. Meanwhile, Kingsoft Office remains vigilant amid uncertainties surrounding its enterprise AI ventures but holds potential for future growth as market conditions stabilize.
"With the rise of low-cost models such as DeepSeek-R1 and the gradual maturity of AI computing infrastructures, we believe Xiaomi will benefit as one of the top global edge AI players," asserted HSBC analysts.
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