Why UBS Sees US AI as Superior to Chinese AI
UBS sees the potential of US Artificial Intelligence (AI) technology as superior to China's AI in many aspects. It has strengths in generating revenue potential and strong cash flow, making the return on risk in US AI stocks superior to China's. The main factors include:
1. Investment budget Capital Expenditure (Capex)
In 2024, the top four US tech companies - Amazon, Alphabet, Microsoft and Meta - invested a combined $4 billion in capital expenditures (Capex), which is expected to rise to $224,000 billion by 302,000. Meanwhile, China's top tech companies - Alibaba, Baidu, ByteDance and Tencent - invested $2025 billion, which is expected to rise to $33,000 billion over the same period. UBS believes this difference gives US companies an advantage in developing infrastructure and AI technologies.
2. Research and Development (R&D)
US AI companies outspend their Chinese counterparts in both total and proportional R&D spending. The top three US cloud providers are expected to invest $2025 billion in R&D in 3, while Chinese companies will spend just $180,000 billion, reflecting the US' commitment to innovation and maintaining technological leadership.
3. Income generating potential
US AI companies have much higher revenue potential, especially in the enterprise market. The largest US cloud providers are estimated to generate 12 times more cloud revenue than their Chinese counterparts, despite spending only 6-8 times more on AI/cloud Capex than their Chinese counterparts, reflecting a superior monetization strategy and broader market for US companies.
4. AI market trends
UBS predicts global AI stocks will grow at a mid-teen percentage point by 10, while China's AI stocks, which have been surging in recent years, are expected to return below ten percent over the next three years.
- China's cloud platforms trade at 18x 2025 P/E vs. the US at 23x, but when adjusted for cash flow, the US figure is down 14%, making US AI more attractive given its larger market size, pricing power and higher revenue potential.
Conclusion:
UBS analysis suggests that US AI companies have greater investment, stronger strategies and better revenue potential, giving the US an edge over Chinese companies.
The Hang Seng China Enterprises Index (HSCEI) is an index reflecting the returns of approximately 50 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. It consists of four main business groups: luxury goods, finance, information technology, and energy. It has performed outstandingly from the beginning of the year to March 4, 24 at a level of 68%. Investors interested in investing in Chinese stocks should therefore study information before deciding to invest and look for new opportunities to invest in other groups of stocks that may have opportunities for growth at reasonable prices.
Reference: investing.com
https://cms.hangsenginvestment.com/cms/ivp/hsvm/document/etf_h_shares_en.pdf
