Artificial intelligence is the latest battlefront for US and Chinese companies as they fight to dominate the disruptive technology. The competition is likely still in its opening stages, but early signs suggest the race may be for US companies to lose.
Investors are increasingly excited about US businesses leading the AI charge—including Microsoft, Googleand Apple—than their Chinese rivals, suggesting that US tech stocks are in a stronger position to benefit as interest in new technology grows, according to an analyst note on Friday of investment firm Wedbush.
The AI race is “a very dominated theme in the US at the moment,” Wedbush managing director and tech analyst Dan Ives wrote in a note, sharing his impressions after meeting hundreds of investors in South and East Asia recently. Ives wrote that he witnessed a “dramatic difference in the positive tone and ramped-up client interest” in Asia during his visit.
In China, meanwhile, “geopolitical tension and regulatory surprises from Beijing” have dampened investor interest in the country’s AI scene, Ives wrote.
Interest in AI in the US has exploded in the past six months, as tech companies such as Google and Microsoft try to play to start OpenAI, the creator of ChatGPT, one of the fastest growing applications in history. The two giants have been released new AI toolsincluding improved search engines and office assistants, and locked in a “Game of Thrones WAR,” Ives said CNBC in February.
Apple has not invested much in the race because of its small presence in the search engine market, but the company is working to integrate AI software into its devices, including a recently announced feature which taps into machine learning to create a synthesized digital copy of users’ voices. Amazon and Meta are also working on their own large-scale language models (LLMs) and AI software. Corporate executives mentions AI almost 1,100 times of earnings calls in the second quarter last month, more than doubling from the same period last year, as companies of all kinds discussed their AI efforts.
Chinese companies are also scrambling to develop better AI, but investor interest has been largely muted. Baidu, China’s leading search engine, has ChatGPT’s own equivalentwhile major tech companies including e-commerce titan Alibaba and telecommunications giant Huawei among the top 10 companies around the world about driving AI research.
In recent years, China may have dedicated more resources than the US to the development of AI The Chinese government has long been a big sponsor in AI research, including a $2.1 billion plan in 2018 to build a technology park dedicated to AI near Beijing. China’s research community also published about twice as many AI-related research papers as the US in 2021, according to a January study by Nikkei, a Tokyo-based financial news. Chinese research is considered to be of higher study quality, as citations of USAI-related papers follow China by nearly 70%.
But despite China’s resources, the country’s early attempts to commercialize AI have failed investors. In March, when Baidu unveiled its AI-powered chatbot, Ernie Bot, investors disappointed that presentation does not include a live demo. That translated into a 6.4% decline in Baidu’s Hong Kong-listed stock by market close on the day of the launch, wiping $3 billion off the company’s value.
While the Chinese government acted swiftly to create rules for AI this year, strict data privacy and censorship requirements have hindered research. Companies developing AI must ensure that their systems do not promote “subversion of state power” or behave in ways that could “divide the nation” and “undermine national unity,” according to the new AI rulesannounced in April.
Limitations risk putting China’s AI at a disadvantage and therefore making it impossible for foreign rivals to measure up, others say. After all, AI systems are only as good as the data they are trained on. The Chinese government has too DESTROYING of big tech companies in recent years by requiring new public listings to be approved by the state first, raising fears that the country is sacrificing innovation in favor of acquiring more control over its technology sector.
“We see more Asian clients devoting their time and resources around owning US tech stocks in the coming year with more spin from China Big Tech,” wrote Ives.
To be sure, lax US regulation of AI has its drawbacks. Current domestic AI models are easy to build misleading and inaccurate statementsand risk of accelerating the spread of wrong information only during the election year. The Biden administration exposed rules this month, which are not yet legal, to govern responsible AI research, but even executives say more AI regulation is “Fundamental.”
But if the US can regulate AI without undermining industrial innovation, and take advantage of China’s shortcomings, it will be a useful technology corner. Ives estimates that AI will grow to become an $800 billion market opportunity over the next decade, calling the technology “one of the most transformative we’ve seen in 22 years of covering technology stocks.”