Chinese technology stocks have begun to recover against their US counterparts, as the global race for artificial intelligence (AI) supremacy intensifies. According to Gemma Cairns-Smith, Investment Specialist at Ruffer Plc, this recovery reflects not only shifting sentiment within China’s regulatory environment but also a growing challenge to US dominance in AI innovation and infrastructure.
In the latest edition of The Green Line, Cairns-Smith observes that while the AI boom is widely seen as a transformational investment opportunity, there are signs that the US-led market is facing structural risks. Although US technology firms currently benefit from strong fundamentals, including rising revenues and profit margins, concerns remain around elevated valuations, concentrated market leadership and the circular nature of financing. She notes that some of the optimism may be waning, citing the market’s reaction to Meta’s announcement to partly fund new capital expenditure through debt, which led to a double-digit decline in its share price.
In contrast, Cairns-Smith highlights the improving relative performance of Chinese technology stocks. Using the Hang Seng Tech Index as a reference, she notes that Chinese firms had significantly underperformed US technology stocks following regulatory crackdowns beginning in late 2020. However, since early 2024, the trend has reversed. This shift has been partly driven by a change in tone from Chinese leadership, including high-profile meetings between President Xi Jinping and major tech figures such as Alibaba’s Jack Ma, which signalled renewed support for the private sector and its role in innovation.
Cairns-Smith attributes the latest momentum in Chinese tech stocks to the AI theme. While the dominant narrative has positioned the US as the clear leader in AI—due to its capital resources, talent and proprietary data—she suggests that China is closing the gap. The launch of DeepSeek R-1, a Chinese-developed model, in January 2025 is cited as a significant development. The model is reported to have demonstrated comparable performance to leading US models at a fraction of the cost.
She also points to China’s efforts to build a self-sufficient AI supply chain. In response to US export controls restricting access to Nvidia’s most advanced chips, Chinese firms including Huawei, Baidu and Alibaba have accelerated chip development. Alibaba’s semiconductor division, T-Head, is reported to have produced chips with performance similar to Nvidia’s export-compliant H20. The R-1 model, initially trained on Nvidia hardware, now runs on Huawei’s Ascend chip, demonstrating China’s increasing capacity in AI hardware.
Nvidia’s CEO, Jensen Huang, has acknowledged China’s progress, stating that the country is only “nanoseconds behind” the US in semiconductor development. Cairns-Smith notes that this progress may enable developing markets to consider China as a credible alternative to US-based technology providers, particularly as geopolitical factors such as tariffs and export restrictions play a growing role in supply chain decisions.
From an investment perspective, Cairns-Smith stresses the importance of valuations. She highlights that the Hang Seng Tech Index trades at around 12 times earnings, compared with the Nasdaq’s 30 times. Alibaba, one of Ruffer’s portfolio holdings, trades near its 10-year average valuation of approximately 20 times earnings. This, she argues, offers investors exposure to AI innovation at more sustainable valuation levels than those seen in US markets.
Cairns-Smith concludes that while AI may indeed be the defining technological shift of the century, the current market structure requires caution. Ruffer Plc sees valuations stretched in the US and favours selective positions in Chinese tech companies that offer a more attractive risk-return profile.
