China’s AI Trade Favors Global Winners Over Local Champions

(Bloomberg) -- China's push for global AI supremacy is increasingly benefiting companies that supply the rest of the world, with investors favoring such stocks as fierce competition hurts their domestically focused peers.

A Bloomberg gauge tracking 30 Chinese technology stocks with the biggest overseas revenue exposure has delivered a return of 36% this year, versus 9% for those more dependent on local sales. A separate measure of the export-oriented firms' outperformance over the other group is set for the strongest-ever reading this year.

The contrasting fortunes partly result from Beijing's ambition to build its own AI ecosystem. The self-sufficiency campaign has led to intense local competition and a vicious price war that has eroded profit margins on chips to robotics. Meanwhile, export-oriented Chinese companies have thrived on surging global demand for AI infrastructure such as data centers.

The future of China's AI industry is back in the spotlight this week ahead of a closely watched summit between President Donald Trump and his counterpart Xi Jinping. All eyes are on whether the two countries can put guardrails around the disruptive technology amid a heated race for global dominance.

"Domestic competition is tough no matter what industry. That's the major concern," said Elinor Leung, managing director of Asia telecom & internet research at CLSA Ltd. "If you can sell internationally, the margin is much higher."

Among the big winners of China's AI export boom are optical component makers Zhongji Innolight Co. and Eoptolink Technology Inc., both of which derive more than 90% of their revenues overseas. The two stocks have each rallied about 50% this year.

Fueling the gains are a strong outlook for global AI spending. Nvidia Corp. chief executive officer Jensen Huang recently said that he expects the company to sell twice as many chips in the coming year, while the initial success of Meta Platforms Inc.'s new AI agent offers further evidence that demand for semiconductors and computing power will likely stay robust.

Many emerging-market funds remain underexposed to China's localization trade and favor exporters leveraged to the US AI capital expenditure cycle, Bank of America strategists wrote in a note last week.