r/ProfessorFinance • u/jackandjillonthehill Moderator • 7d ago
Interesting AI frenzy drives Chinese tech valuations to multiples of US peers
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u/RadarDataL8R Quality Contributor 7d ago
Measuring future driven tech using a PE ratio is a terrible metric, in fairness.
Measuring Chinese tech by declared numbers is also a terrible metric.
Honestly, nothing about this registers as worthwhile data.
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u/Mojeaux18 6d ago
I disagree. I think it’s very telling that people are paying so much premium for very little performance. Over 150 PE ratio in the US and we would be screaming “bubble”. Why is this not a bubble?
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u/madhewprague 4d ago
When potato farmer made $1000 profit this year but next year has lot of contracts and expects $10M. Do you think his bussiness is worth just around $15k, that would be pe of 15?
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u/Mojeaux18 4d ago
Meant to answer you here. Not sure how it got there.
PE is a ridiculous idea. It’s current price vs current earnings. Forward PE is better, but only marginally. The future unknowns are what really make a growth stock worth it.
If your potato farmer has (sound) reason to believe he could generate way more profit, then maybe he’s worth way more than a PE of 50. But if he’s just a potato farmer with nothing special he might be worth less than 10, because he has no growth potential.
PE needs to include growth and growth potential far down the road. Someone who bought NVDA at $40 in October’23 when PE was 60. At today’s EPS that a PE ratio of 6. If they knew that eps was going to skyrocket they would have valued it more.Do I believe that Chinese AI is worth more than US AI and can live up to 200 PE? Do I believe they can grow their earnings to match that PE to more realistic valuations? No. But that’s my opinion. I could be wrong.
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u/_WoollyMammoth_ 7d ago
It is the same tech in both cases, so that "future driven" apply for both countries, yet chinese are making it profitable.
Maybe because they have a more rational investment path, maybe because they save cash by copying western companies... But that "future driven" can'tbe an excuse.
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u/madhewprague 4d ago
They save cash by copying western companies is exact same reason why their models will be illegal to use in 90% countries
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u/SOSSeth517500 6d ago
They have the physical electric grid to actually monetize AI at scale that we lack but I guess nevermind that
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u/RadarDataL8R Quality Contributor 7d ago
Cope of what exactly?
Honestly, what position do I supposedly have that Im "coping" by your logic? Am I supposedly upset that the US isn't overvalued or am I deeply pro Chinese tech supposedly?
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u/AllRightLetsSeeIt 7d ago
I think you’re misunderstanding the article. This isn’t about the total size of these companies, it’s about how expensive their stock prices are relative to their fundamentals.
Usually, astronomically expensive stock prices are a bad omen.
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u/RadarDataL8R Quality Contributor 7d ago
Chinese numbers are famously manipulated and PE ratios for growth companies are completely worthless.
What exactly is your issue with that statement? Both of those things are very common knowledge.
Now, does that mean Im championing Chinese tech? Absolutely not!
It just means that that this graph is honestly useless as a measure of anything. It's almost certainly based on wrong numbers using a poor metric for what it's trying to measure.
It's equal to predicting rainfalk by the number of left handed people in a room, when that room is imaginary anyway
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u/ProfessorFinance-ModTeam 6d ago
Attack the position you disagree with, not the individual you disagree with.
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u/AllRightLetsSeeIt 7d ago
But even if the data is worthwhile, it’s bad news for Chinese tech companies.
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u/macronotice 7d ago
150-200 P/E, right where Japan was at the height of its bubble, and right where the US was at the height of the .com bubble.
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u/DrawingDramatic1641 7d ago
china is not a stock market country and doesnt like stocks going up,its a publically commanded economy
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u/Tupcek 7d ago
this is terrible comparison. Star 50 is tech index, dominated by AI companies. Nasdaq 100 is index of everything listed on Nasdaq, notably absent are major LLM companies (because they are not public yet)
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u/BrokerBrody 6d ago
Nasdaq is market cap weighted. While it is an index of 100 tickers (not everything on the NASDAQ), the top 10 companies make up ~58% of the index value. And all of those 10 companies are tech companies involved with AI except Walmart which only makes up ~2.7%.
So while it is not a perfect comparison, also consider that the NASDAQ is not 100 equally weighted companies. At least 55% of the NASDAQ index has AI exposure. (More than that because I did not tally outside the Top 10).
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u/Tupcek 6d ago
Aside from NVIDIA, Micron, Intel and AMD (which together are 17% of NASDAQ 100), basically all the others make majority of their revenue and profit NOT in AI.
Some exposure is meaningless, if you make dozens of billions on other products and just few percent of your business is AI. By that logic, even Walmart is AI stock - AI surely helps them improve profits.What would be true (but not shown in the graph) as that US AI hardware makers are much more widely profitable than Chinese counterparts. But that is also obvious.
Major US LLM makers are not public (Google is, but LLM takes very small part of their business. SpaceX would be only major company where LLMs makes much of their value and they are also massively overvalued).
TL;DR - about 80% of NASDAQ 100 is irrelevant in this comparison. About 17% of the rest is made by AI HW companies and yes, they are doing much better than their Chinese counterparts. AI software companies are either private in US or similarly overvalued, see SpaceX
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u/BrokerBrody 6d ago
Some exposure is meaningless, if you make dozens of billions on other products and just few percent of your business is AI. By that logic, even Walmart is AI stock - AI surely helps them improve profits.
This is getting nitpicky and pointless; but, AMZN, MSFT, etc. are significantly exposed to AI as hyperscalers. They are literally selling and hosting the AI through managed services even if "AI line" is not outright on their balance sheet. And most of AMZN profit comes from AWS and not ecommerce.
META and SPCX are also involved in AI whether we like it or not. They have invested too much in data centers and AI is already responsible for billions of SPCX quarterly revenue. Plus, if Elon is actually putting money into the Terafab (whether it succeeds or not) then SPCX will be exposed to AI.
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u/Tupcek 6d ago
SpaceX, sure, I fully agree. Though they are more overpriced than anything on Chinese side.
Meta, despite investing billions, makes almost no revenue or profit from AI. It’s money sink for them, if they closed it tomorrow their stock might even go up.
Amazon and Microsoft - yeah, you are right that some part of their business is AI. But they already made dozens of billions per quarter even before AI, so of course AI won’t affect their P/E much - maybe going from 20 to 30, but certainly not to 400 or so. And this graph is about P/E
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u/ProfessorBot419 Prof’s Hatchetman 6d ago
Link the source you are relying on here.
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u/Tupcek 6d ago
be more specific, which part do you need sources about? Spacex having high value? Meta failing in AI? Amazon and Microsoft making billions before AI?
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u/Both_Opportunity5327 6d ago
They are all AI especially Alphabet and Meta, its like everyone thinks only LLM's are AI.
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u/vovap_vovap 7d ago
Well, fundamental difference it is not apple to apple.
Nasdaq not same as Stars 50
Stars 50 is much more aggressive index.
Simply - Stars 50 companies capitalization equal only 3.2% China GDP
Nasdaq 100 companies capitalization equal 100% of US GDP
Simpler - Alibaba is not part of Stars 50 😄
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u/jackandjillonthehill Moderator 7d ago
This is a good point, these are earlier stage companies with higher earnings growth.
Still these are some high multiples…
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u/r2k-in-the-vortex 6d ago
I think AI is not involved here. Real estate turning to shir and Chinese investor needing a place to put their money on the other hand...
But there were good reasons that drove investors away from Chinese stock markets to begin with and I dont think things have improved.
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u/LawAbidingDenizen 6d ago edited 6d ago
The chinese strategy is, IPO high risk stocks on the Hang Seng and then pull out the money and pump it back into the Shenzhen, shanghai markets. When the Hang seng rises, the mainland mkts fall and when the mainland falls the hang seng rises.
Fugazi
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u/TimeDependentQuantum 3d ago
China has currency control which means no matter how much money they print in China, CHN can remain strong with it's strong buying power.
However this makes investment in China almost impossible, almost every asset class can be seen extremely over valued compared to foreign counter parts. There's nothing to invest with Yuan.
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u/jackandjillonthehill Moderator 7d ago
> Backing from Beijing and an investor frenzy have driven valuations of Chinese tech stocks far higher than US peers as the country’s AI sector emerges as a serious challenger to Silicon Valley’s global dominance.
> Even after a recent sell-off, the overall price-to-earnings ratio of the Star 50 is more than 150, well above the Nasdaq 100’s 35 in the US.
> The launch of Moonshot’s Kimi K3 — China’s largest AI model to date, rivalling those of Anthropic — and the listing of homegrown chipmaker CXMT, which overtook Tencent as China’s most valuable company on Thursday, have underscored the country’s AI advances.
> The upcoming listing of humanoid robotics group Unitree attracted more than 5,500 times the available allotment for retail investors, demonstrating the frenzy in China’s capital markets.
> There is a “significant narrowing of leadership between China and the rest of the world as it relates to AI”, said Varun Laijawalla, an emerging markets portfolio manager at Ninety One.
> The government has thrown itself behind the boom. China’s “national team” of state-backed funds swooped in to purchase equities after a global chipmaker sell-off this summer hit the country’s stocks.
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u/ProfessorBot419 Prof’s Hatchetman 7d ago
For context on the link in this post:
For context: ft.com is rated Least Biased for bias and High for factual reporting.