While portions of Wall Street are reacting to what some describe as an "AI scare trade" - shedding shares in software and wealth management names on fears of disruption - equity flows in mainland China and Hong Kong are headed in the opposite direction. Rather than reducing exposure, local investors have been allocating capital toward domestic firms positioned as AI frontrunners.
This buying pressure is rooted in expectations that AI will unlock new end markets and materially lower costs for users, prompting a strong divergence between the two largest global economies. In Hong Kong and on the mainland, companies perceived as "pure-play" AI developers have become the focus of investor optimism. MiniMax Group Inc. (HK: 970) and Knowledge Atlas Technology JSC Ltd. (Zhipu) (HK: 725) are notable beneficiaries of the shift.
Market moves were particularly pronounced in February, when both MiniMax and Zhipu saw their market valuations more than double. That surge came as some investors rotated capital away from established internet names such as Alibaba and Tencent and toward firms with clearer AI-only narratives. Observers point to China's regulatory environment, which effectively constrains the direct entry of some foreign AI models, as a factor that provides domestic players with relatively uncontested access to local customers.
Domestic performance tailwinds and the global funding halo
Chinese AI momentum has been reinforced by two interlocking influences. First, local labs are registering technical improvements that attract investor attention. For example, Zhipu's model GLM-5 recently achieved the top ranking among open-source models on Artificial Analysis, marking the highest global standing for a Chinese lab reported in the coverage.
Second, massive private rounds abroad have created a performance halo that benefits AI developers worldwide. Reports that OpenAI is seeking a valuation exceeding $850 billion and that Anthropic raised funds at roughly a $380 billion valuation have coincided with investor re-rating of Chinese firms. Analysts and market participants suggest that as local models hit new technical milestones and firms such as DeepSeek deliver highly cost-competitive solutions, adoption is accelerating across film, media and enterprise end markets, and ripple effects are appearing in industries that can leverage these tools.
Institutional validation and the valuation debate
Major global banks have amplified investor confidence by initiating coverage on selected Chinese AI names. Morgan Stanley, Jefferies and UBS have all opened coverage on MiniMax with ratings equivalent to "Buy". Morgan Stanley's forecasts include a projection that MiniMax's revenue could reach $700 million by 2027, a notably optimistic scenario that feeds bullish market narratives.
Such institutional backing has strengthened the view among some market participants that China is still in the "penetration phase" of the AI adoption cycle, while certain observers regard the United States as being in an "anxiety phase" driven by fears of disruption. That framing helps explain the current appetite for domestic pure-play developers among Chinese and Hong Kong investors.
Risks and market-watchers' cautions
Despite the momentum, experienced analysts warn the re-rating could be hard to sustain if earnings growth does not materialize to justify lofty valuations. There is concern that investors may be overlooking the same disruption risks that have pressured U.S. software and wealth management stocks. In short, if business results lag expectations, the rapid multiple expansion seen in recent weeks could reverse.
For now, however, sentiment remains strongly tilted toward the pure-play AI developers, supported by technical advances, competitive cost structures and visible analyst support.
Promotional note on data tools referenced in the coverage
Tools that screen AI-driven strategies and portfolios have been highlighted by market commentators as influencing stock selection. According to performance data cited in the original coverage, year-to-date statistics show that two out of three global portfolios tracked by a ProPicks AI product were outperforming their benchmarks, with 88% of portfolios in positive territory. The coverage also referenced a flagship strategy that reportedly outpaced the S&P 500 over an 18-month span and named notable winners identified within those portfolios.
Investors monitoring the sector will likely continue to weigh rapid technical progress and institutional support against the question of whether future earnings can validate current valuations.