00:10 Speaker A
Can China threaten the US dominance in AI? Well, the Shanghai composite, China’s mainland benchmark rose 3% in September alone. It’s longest monthly rally since 2017. Why? Well, Asian tech stocks have been on the rise. They’ve been benefiting from optimism around companies linked to AI developments. But is this optimism warranted? Well, to help answer that and more, I’m joined by Rick Caru, adjunct professor of finance at Fordham University’s Gabelli School of Business in New York.
00:50 Speaker A
Rick, thanks so much for joining us. We’ll let’s start with that thought. Is the recent optimism surrounding these Chinese tech stocks justified at the moment?
01:04 Rick Caru
Yeah, well, thank you so much for having me. You know, the Chinese tech sector has long been one of the most innovative and I would say even though it lags behind uh the US Silicon Valley giants, uh you can look at Alibaba, Tencent and more recently challenges like Deepseek and Bitedance, which is the parent company of Tik Tok. And you can see Chinese innovation continues to go across the board and while it may still be behind the US, it continues to uh also trade at cheaper valuations. And what you’re really seeing this year is domestic investors really
01:46 Rick Caru
rediscovering the value of those companies. And, you know, the two bellweathers that I uh watch very closely, Alibaba and Tencent. Alibaba is up over 113% so far this year and 10 cents up almost 60 60%. So what you’re seeing is investors starting to rediscover the value in some of these Chinese tech giants that are making tremendous strides in in innovation and the government’s also providing a bit more uh support for their uh entrepreneurs, which has not been the case for the past four years.
02:37 Speaker A
Well you mentioned there Alibaba. Let’s take a bit of a deeper look there. I mean, what do you make of its recent partnership with Nvidia? How does that affect it, especially as we know that Beijing has been telling uh tech firms not to buy from Nvidia.
02:59 Rick Caru
Yeah, it’s been very interesting. You know, when when you look at um, Nvidia’s presence in China, it’s long been focused on selling to companies like Alibaba, um, Tencent, Deepseek, some of these uh giants that use their chips and Alibaba has always been a natural partner for foreign firms to work with in China. You know, they have an international style management team, they have a long wide reach across the country. And so I think this partnership, which is mostly focused around uh robotics and some of those developments, while it’s a good sign uh for both Nvidia in terms of continuing to grow its presence in the Chinese market. Uh it’s also a good sign for for Alibaba that they’re continuing to be close to the cutting edge and in partnership with a global leader.
04:08 Speaker A
And there’s more signs that Nvidia’s under pressure in China. We only heard this earlier this week that Huawei is going to try and double output of its top AI chips. Is Nvidia in trouble in China?
04:28 Rick Caru
Well, you know, there’s kind of two levels to this. One is Nvidia’s clearly has the uh lead in terms of technological development. So that’s to their benefit. The challenge really is where they lie within the geopolitical game between the US and China. And one of the things that’s really interestingly emerged is that Jensen Huang has become the CEO of Nvidia, has become a bit of a diplomat uh in helping to negotiate some of the trade issues around technology between China and the US. Now, in terms of the underlying business fundamentals, Huawei is making a huge effort. They have a huge number of engineers and other folks that are supporting um the development of their chips. They’ve got all the resources you could ask for with the Chinese government support, but I would say that they’re still several years behind and so the cutting edge chips are still uh Nvidia chips being used uh in in China to the extent that they’re available. and Huawei is while it’s making progress, it still has quite a ways to go in order to catch up with the cutting edge.
05:46 Speaker A
So Rick, I’ve spoken to many uh company bosses in the tech industry and recently spoken to the president of Cisco who said that the US was leading the way when it comes to AI, but where do you think China now stands in this AI race?
06:05 Rick Caru
Well, there’s kind of a joke that uh is going around Silicon Valley and Chinese tech circles that really what’s happening is a competition between Chinese engineers in the US and Chinese engineers in China uh for dominance in AI. And I think there’s some truth to that. If you look at the leading companies, you know, Jensen Huang is a is a Taiwanese, uh Taiwanese-American and um, many of the, you know, one of the very high profile hires by um, meta was a is a young, you know, young Chinese um, uh developer. So, you know, they’re Chinese engineers are really leading the way and the question is is whether the US with its immigration policies can retain a lot of that international talent uh in in the US and continue to stay on the cutting edge. You know, there’s opportunities in both Taiwan and in China for those engineers to uh to do very well financially. So, I think the competition is is real and I think uh it’s important for government policies as well as for US tech companies to really try to stay on the cutting edge and um support policies that make the US a global leader, not just a US leader.
07:37 Speaker A
And Rick, while I have you, um what about the IPO market in China? We’ve heard overnight that Zijing Gold, it’s the one of the biggest IPOs this year. I think they raised $3.2 billion dollars and it’s done brilliantly on its first day of trading. Uh, what do you make of of the IPO industry in China at the moment and especially, you know, Zijing Gold?
08:08 Rick Caru
Yeah, it’s uh it’s really interesting. Obviously, gold, um, the gold price of gold has done very well and so you would expect that to be a supportive environment for mining companies like Zagine. Um, you know, at the same time, one of the things we’re seeing is Chinese domestic investors have really uh become more enthusiastic about the stock market and pushed up prices, but global investors have not yet really allocated to China in the way that they were pre-covid. So we still see global allocations to China in the single digits and that could give support for room to run for the market. And what you’re seeing with the Zagine IPO, which is a Hong Kong IPO is really targeting global investors, not domestic investors. And so in some ways that and the CATL IPO earlier this year are helping to get global investors more enthusiastic in a way that domestic investors already are.
09:25 Speaker A
Okay. Rick Caru from Fordom University, the Gabelli Business School at Fordom University. Many thanks for your thoughts.
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