CNBC's The China Connection newsletter: Foreign investors warm to China’s cheaper AI valuations despite fears of a U.S. bubble

For all the worries about a bubble in U.S. AI spending, capital flows into China's tech sector is far less, pushing startups to do more with less.

Nov 26, 2025 - 20:33

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This report is from this week's CNBC's The China Connection newsletter, which brings you insights and analysis on what's driving the world's second-largest economy. You can subscribe here.

The big story

Sitting in his new Beijing office, AI2 Robotics Founder and CEO Eric Guo wistfully reflected on fundraising challenges in China — and noted that U.S.-based humanoid rival Figure recently raised $1 billion in a single round, at a $39 billion valuation.

That's far more than what a Chinese robotics company can typically raise, he said.

His strategy for growth? Do more with less.

That means, for instance, developing a robotics AI model that uses less than 10% of the parameters required to train Alphabet's RT-2 AI model, as laid out in one of Guo's widely cited papers. Guo, who holds a Ph.D. from Purdue University, previously worked at Microsoft, smartphone maker Oppo and electric vehicle company Xpeng.

It mirrors how DeepSeek and other Chinese players have slashed AI costs for users, and allowed them to claim AI development budgets far below OpenAI's estimated spending, which has exceeded $100 billion. That strategy is enough to make AI2 Robotics one of China's hottest investment targets.

The Shenzhen-based startup hit a $1 billion valuation this fall, reaching unicorn status just over two years after launch — thanks to a whopping nine fundraising rounds so far this year, according to a person familiar with the matter.

Jiang Zheyuan, chairman of Noetix Robotics, with a robotic android at the company's offices in Beijing, China, on Friday, June 27, 2025.

Na Bian | Bloomberg | Getty Images

A fraction of the money

The hot U.S. AI trade has shifted to Alphabet this week following rave reviews of its newest AI model — just weeks after Warren Buffett's Berkshire Hathaway disclosed a rare tech position in the stock. Michael Burry, known for calling the U.S. housing crash before 2008, was the latest voice to warn of bubble risks in U.S. AI names that have powered recent market gains on Monday.

But whatever's bubbling up in China's tech sector, it pales in comparison with the U.S.

U.S. venture deals in AI and robotics have more than quadrupled since 2023 to exceed $160 billion so far this year, according to a CNBC analysis of PitchBook data.

Comparable deals in China this year are just over $10 billion — only slightly more than the $9.24 billion recorded in 2023, the data showed.

It's a confluence of regulatory pressures in China, U.S. export controls and a scrappy startup environment where locals have overcome stringent pandemic lockdowns to stay competitive.

Global investors are increasingly interested.

Bubble risks for Chinese AI firms appear far more contained than in the U.S., said Vincent Lu, partner and head of private equity at Australian asset manager Boman Group. The Melbourne-based firm oversees AU$910 million ($591.26 million), mostly allocated in Australia and North America, and has participated in funding rounds for U.S.-based Anthropic earlier this year and OpenAI last year.

Lu was "so intrigued" by China's AI and robotics scene that he moved back to Shanghai from Melbourne last year to scout deals, and is just starting to get serious about a few. Chinese companies' AI valuations are about one-quarter of their American peers, while benefiting from lower research and development costs, he added.

'Clear recovery' in U.S. sentiment

Boman's Lu was just one of many investors at the AVCJ forum in Hong Kong last week who told CNBC how excited they were about how cheaply priced Chinese AI startups are compared to those in the U.S.

It marks an ongoing recovery in foreign investor interest in China following Beijing's crackdown on large internet tech companies in recent years, coupled with Washington's scrutiny of China-related investments.

This month alone, at least three China-based funds with an AI focus have raised capital denominated in U.S. dollars from overseas investors:

Monolith Capital, which backed DeepSeek's rival Moonshot AI, raised $488 million for two funds — one denominated in Chinese yuan and the other in U.S. dollars — without disclosing a breakdown. Foreign participants in the U.S. dollar fund included institutions in the U.S., Singapore, Europe and the Middle East, a company representative told CNBC.Source Code Capital, the VC firm behind ByteDance and Meituan, raised even more — $600 million.Blue Pool Capital, backed by Alibaba co-founder Joe Tsai, is targeting $750 million for its first fund to tap external capital for direct investments, according to the Financial Times.

Venture firms raise capital from outside investors, known as limited partners, earning annual fees as they put that money to work in startups. Once the startups go public or are sold at higher valuations, the VC firms can "exit" and share the returns with their limited partners.

The momentum is building, even if the numbers don't look big yet. Monolith claimed investors sought to commit more than $600 million to its latest fundraising round, but it kept the original cap of $488 million.

Funds of this size would have been "inconceivable" just a year ago, said Johnny Zou, co-head of Primavera Venture Partners, adding that American investor sentiment toward China is seeing a "clear recovery," helped by relatively visible exit paths.

While Chinese companies have yet to resume IPOs in the U.S., they have flocked to Hong Kong, turning its stock exchange into the world's largest listing destination this year.

Even so, stock investors are relatively more cautious on China than the U.S.

The Hang Seng Index, which includes AI heavyweights Alibaba and Tencent, is up nearly 30% so far this year, but trades at a modest 13.61 price-to-earnings ratio, according to FactSet data. The Nasdaq Composite, in contrast, trades at a 33.8 ratio, with the index up almost 20% so far this year.

Top TV picks on CNBC

Young Liu, chairman of Hon Hai Technology Group, compared talk of an AI bubble to a dot-com bubble and said that the world's top technology companies will ultimately be AI-related.

EQT Asia Chairman Jean Eric Salata and CEO Per Franzen discussed the firm's focus in Asia, outlining the strategies it is pursuing in the region.

Joey Wat, CEO of Yum China, said the company plans to accelerate store openings in China and that the country's urbanization is not complete yet.

Need to know

Trump-Xi call. The U.S. and Chinese presidents on Monday night signaled that a one-year trade truce is intact, just as tensions flare between Beijing and Tokyo over Taiwan.

Japanese concerts get canceled. At least two performances in Beijing were abruptly canceled last week amid China's expanding pushback against Japan's high-profile Taiwan comments.

Alibaba AI app downloads surge. The company's new Qwen app reported more than 10 million downloads in a week as its AI pivot gains momentum.

Quote of the week

I think the U.S. [AI] bottleneck probably is electricity, but in China, the bottleneck is GPUs. ... I don't think that there's [much] discussion about the bubble here.

— Shawn Yang, analyst, Arete Research

In the markets

China's CSI 300 rose 0.74% as of 2:30 pm local time Wednesday. The index is set to snap a two-week losing streak, gaining 1.53% so far this week. The benchmark has risen 14.9% so far this year.

Hong Kong's Hang Seng Index climbed 0.25% and is up 2.9% for the week, recovering from last week's decline amid a global tech sell-off. The main stock gauge is up 29.4% year to date.

The offshore yuan last traded at 7.077 against the dollar, its strongest level since October 2024.

— Nur Hikmah Md Ali

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