Made in China – AI too? | The Green Line

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Articles by Gemma

Gemma Cairns-Smith

Investment Specialist

13 November 2025

Is the AI boom a once-in-a-generation opportunity, or a bubble waiting to pop? That’s the trillion-dollar question keeping investors up at night.

On the one hand, tech companies’ fundamentals remain robust. Profit margins are widening, revenues are rising, and, crucially, much of the capital driving this revolution is funded by cash, unlike many debt-fuelled booms of the past.

Yet warning lights are flashing: the market’s valuation is elevated and concentration is narrow, financing is becoming increasingly circular, and the real economic returns on AI remain uncertain. Now, sentiment could be starting to sour. Witness the market’s swift reaction to Meta’s announcement that it would fund some of its latest capex with debt rather than cash, wiping over 10% off its share price. For these reasons, we have deliberately limited exposure to the Magnificent 7.

But this month’s chart focuses on another angle of the AI story: US-China competition. The chart tracks the performance of Chinese technology stocks (via the Hang Seng Tech Index) relative to the Nasdaq 100. When the green line is falling, US tech firms are outperforming. When it is rising, Chinese ones are.

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In late 2020, a regulatory campaign triggered a sharp sell-off in Chinese shares, wiping out trillions in market value as Beijing sought to rein in the power of China’s largest technology companies. This chart captures the tail end of that decline, with Chinese tech consistently underperforming US equities in 2023.

Since the start of 2024, the tide has begun to turn, with Chinese tech stocks firming and then outperforming the Nasdaq. This shift has been catalysed by a notable change in tone from President Xi. High-profile meetings with tech leaders such as Alibaba founder Jack Ma signalled renewed support for the private sector and its role in driving innovation and economic growth.

Yet the story doesn’t end with regulatory thaw. It’s now being propelled by the market’s favourite theme: AI. While the dominant narrative paints AI as a US-only fortress of high capital costs, elite talent and proprietary data, the moat may not be as wide, or as deep, as many think. The competitive landscape is shifting.

The release of DeepSeek R-1 in January 2025 was a warning shot to AI incumbents. Built by a Chinese startup, the model has shown comparable performance to leading US models on some benchmarks while operating at a fraction of the cost.

But Chinese competition extends beyond its large language models. As US export controls restrict access to Nvidia’s most advanced chips, Beijing is accelerating efforts to build its own AI supply chain, creating chips to rival Nvidia’s. Jensen Huang, Nvidia’s CEO, warned China was just ‘nanoseconds behind’ the US in chip development.

We currently gain exposure to the AI theme through China technology giants such as Alibaba, which is at the forefront of this evolving landscape. Its semiconductor arm, T-Head, has been quietly engineering proprietary chips to power AI workloads. Its latest supposedly matches Nvidia’s export-compliant H20.

Baidu, Huawei and other domestic players are also building AI chips. When DeepSeek launched its R-1 model in January, it was trained using Nvidia’s chips. Today, it runs on Huawei’s Ascend.

While China’s strategic thrust is still in its early stages, the direction is clear. China is making deliberate, coordinated strides towards technological sovereignty. If the trend continues, it could reshape the global tech landscape, offering developing markets a credible alternative to US-based providers. With the US using tariffs and export controls as a geopolitical weapon, the appeal of sourcing key tech from China is growing for many countries.

Moreover, valuations – which are key for long-term returns – are not stretched, unlike in the US. Alibaba’s valuation is around its average of the past 10 years, at about 20 times earnings. The Hang Seng Tech Index trades on 12 times, way below the Nasdaq’s lofty 30 times.

AI is radically reshaping the world as we know it, just as the internet did three decades ago. But, as investors learned during the dot.com bubble, first movers are not always the last dancers. We think Chinese tech shares offer an attractive risk-return profile – a way to profit from what could be the defining technological breakthrough of the century, without paying a premium price.

Articles by Gemma

Gemma Cairns-Smith

Investment Specialist

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Piers Wheeler

Director – Institutional

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Developing and executing asset management strategy for capital raising and strategic relationship management. Coverage includes EMEA, Asia and Australia. Piers joined Ruffer in 2021, having previously worked with asset management firms including Eastspring, AMP Capital and LEK as a strategic consultant. He holds a MA from the Bayes Business School and a BA (Hons) from the University of Oxford.

Annabel Paterson

Senior Associate – Institutional

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Joined Ruffer in 2021, having graduated with a first class honours degree in land economics from the University of Cambridge. After two years working with the UK Private Wealth team and completing her IMC and CFA Level I qualifications, she now supports Ruffer’s global business development and client servicing efforts.

Articles by Annabel

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Made in China – AI too?