Foreign investors warm to China’s cheaper AI valuations

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.

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.

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…