Chinese internet giants will drive the continued adoption of AI in the country despite the risk of semiconductor chip shortages.
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Chatbot Demand
According to a report from investment bank JPMorgan (JPM), more Chinese people will continue to use AI features in the next 12 months despite the “absence of clear evidence of AI monetization in China.”
Alex Yao, co-head of Asia-Pacific technology, media and telecoms equity research, said China’s Big Tech tigers are seeing their chatbot apps such as Tencent Holdings’ (TCEHY) Yuanbao and ByteDance’s Doubao gain traction.
He expects companies like Tencent and Alibaba Group (BABA) to focus on integrating AI features into their established “killer apps,” such as messaging platform WeChat and the online marketplace Taobao.
Such efforts would generate “a lot of token consumption,” which would boost revenues for cloud service vendors.
Export Controls
Chip challenges caused by U.S. export controls have posed problems for Chinese AI companies. Reports this week suggested that the shortfall is so deep that Beijing is now stepping in to control how production from Semiconductor Manufacturing International Corporation (SMIC) is shared. Reports also say that Chinese officials are giving priority to Huawei Technologies, which uses SMIC’s chips to power its AI products.
However, JPMorgan said it would not be a “significant hurdle” in the short-term. Chinese GPU manufacturers were achieving “rapid improvements” in chip quality and many tech companies had accumulated “excessive inventory” from the previous year, said Gokul Hariharan, co-head of Asia-Pacific technology, media and telecoms equity research.
“[Chip shortage] is an issue, but I don’t see it as a key bottleneck” over the next 12 months, Yao added.
JPMorgan predicted continued earnings-per-share upgrades over the next two to three quarters, particularly in the semiconductor industry.
The internet giants are also likely to see their shares continuing to do well after a strong 2025 to date:
“Concerns about an AI bubble will still be there, and I don’t think it’s going to completely go away,” Hariharan said. “Demand is still very strong, and that will probably prolong the cycle through 2026 and most of 2027 as well.”
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