Chinese technology firms are facing challenges in meeting their artificial intelligence (AI) ambitions due to insufficient computing resources. Notably, Alibaba recently announced a significant increase in its cloud-related revenue, which rose 34% year-over-year to approximately $5.6 billion. The company’s management indicated that demand for AI infrastructure is exceeding supply, prompting considerations to exceed their initial investment of 380 billion yuan ($53.74 billion) for AI development over the next three years.
Analysts at Citic highlight that this situation positions China’s domestic computing sector at a crucial juncture, anticipating that other cloud providers will likely follow suit in boosting their AI-related spending. Chinese companies are generally discreet about their chip suppliers and face restrictions on accessing advanced Nvidia semiconductors from the U.S. However, local suppliers, such as Huawei, and emerging firms are becoming focal points for investment.
One notable player is Cambricon, which experienced a remarkable revenue increase of over 4,000% in the first half of the year and has seen its stock price more than double. Goldman Sachs rates Cambricon as a buy, forecasting significant growth potential due to rising domestic demand for AI technologies. Reports suggest that Cambricon aims to triple its production next year to fill this demand gap.
Other companies, such as Hygon and the newly launched Moore Threads, are emerging as alternatives to Nvidia and AMD for AI chip design. Meanwhile, Tencent has expressed concerns that restrictions on AI chips have hindered its cloud revenue growth.
As Chinese firms invest heavily in generative AI, companies like Kuaishou are also set to increase their capital expenditures significantly, reflecting burgeoning growth in the sector despite current challenges.
Why this story matters
- The race for AI capability signifies broader implications for China’s technology landscape.
Key takeaway
- Domestic investment in AI infrastructure is set to increase significantly as Chinese companies adapt to challenges presented by U.S. restrictions.
Opposing viewpoint
- Some analysts caution that without the ability to access advanced chips, the potential growth could be limited, impacting AI deployment capabilities in the near future.
