According to Reuters, global investors are ramping up bets on Chinese artificial intelligence companies in December, seeking diversification as fears grow over a speculative bubble in U.S.-listed AI stocks. U.K. asset manager Ruffer is deliberately limiting exposure to the “Magnificent Seven” U.S. giants and is adding positions in Alibaba for AI exposure. Chinese AI chipmaker MetaX jumped 700% in its Shanghai debut last week, while rival Moore Threads popped 400%. The tech-heavy Nasdaq trades at 31 times earnings, compared to a multiple of 24 for Hong Kong’s Hang Seng Tech Index. KraneShares’ KWEB ETF, which holds stocks like Tencent and Alibaba, has grown by two-thirds this year to nearly $9 billion.
The Rotation Play
Here’s the thing: this isn’t just about believing China will win the AI race. It’s a classic valuation rotation. When one market gets too hot and expensive, money looks for the next thing that’s cheaper but has a similar narrative. The U.S. AI trade, dominated by Nvidia and the mega-caps, feels crowded and pricey. So, fund managers are pointing to the Hang Seng Tech Index’s lower earnings multiple and saying, “Look, we can get AI exposure here for a better price.” They’re using giants like Alibaba, Baidu, and Tencent as proxies. These aren’t pure-play AI firms, but they have massive cloud units, are developing LLMs, and are pouring cash into infrastructure. It’s a safer, more diversified way to tap the theme.
Geopolitics as a Catalyst
And you can’t ignore the geopolitical angle. U.S. tech curbs have, ironically, created a compelling investment narrative. As Rayliant’s Jason Hsu put it, the restrictions have “forced China to pump money into hard technology and invent from scratch.” Beijing’s full-throated push for tech self-reliance isn’t subtle—it’s fast-tracking chipmaker IPOs and throwing policy support at the sector. This creates a sense of urgent, state-backed momentum. KraneShares’ CIO Brendan Ahern had a great line: “It’s like yelling fire, right? When you make it an emergency, you get a lot of attention.” That attention is now translating into investor dollars, flowing into ETFs and directly into those eye-popping IPO pops.
The Hype vs. Reality Problem
But let’s pump the brakes for a second. A 700% IPO surge for a chipmaker? That’s the very definition of speculative frenzy. Some fund managers are openly skeptical. Kamil Dimmich of North of South Capital said bluntly that listed Chinese chip companies have “no sort of valuation support and are almost entirely driven by hype.” He has a point. There’s a massive gap between China’s ambitious goals and its current semiconductor capabilities, especially in high-end AI chips. Investing in Alibaba’s cloud business is one thing; betting on a startup challenging Nvidia’s CUDA ecosystem is another entirely. The manufacturing and engineering advantages are real, but innovation is a different beast.
A Prudent Bet or a FOMO Trade?
So what’s the smart move? The consensus from the money managers in the article seems to be: diversification. Don’t replace your Nvidia position with Cambricon. Instead, add some Chinese tech exposure as a hedge and a value play within the AI megatrend. As Carol Fong of CGS International Securities advised, investors should “balance exposure” in this fragmented, geopolitics-driven cycle. The strategy isn’t to pick the Chinese winner, but to buy the basket—often through ETFs like KWEB or the new Rayliant fund—while keeping core positions in global leaders. It’s a recognition that the AI story will have multiple chapters written in different regions, and that chasing only the U.S. chapter might mean missing crucial parts of the plot. Whether this is genuine conviction or just fear of missing out on the next hype cycle, though, remains to be seen.
