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Against the backdrop of the ongoing trade war, the US vs China tech rivalry is heating up, with both nations striving to surpass each other in their quest for supremacy in the global tech industry.
Along these lines, a 2023 report from the Australian Strategic Policy Institute (ASPI) indicates that the United States holds a commanding position in high-performance computing, quantum computing, and vaccine development.
However, as per the same report, China asserts dominance in 37 out of 44 key technology sectors. These include defence, space exploration, robotics, energy, environmental technologies, biotechnology, artificial intelligence (AI), advanced materials, and quantum technology.
“Our research reveals that China has built the foundations to position itself as the world’s leading science and technology superpower by establishing a sometimes stunning lead in high-impact research across the majority of critical and emerging technology domains,” informs ASPI.
China big tech not without challenges at home
Despite such optimistic views on China’s technology sector, several leading Chinese tech companies are grappling with challenges amid the country’s economic slowdown and increased government restrictions, dragging their stock performance down.
Out of the Chinese BAT stocks (acronym for Baidu Inc., Alibaba Holding Group Ltd., and Tencent Holdings Ltd.), only Baidu saw its market cap and stocks rise in 2023.
Alibaba’s stock has fallen by 12.01%, and its market cap has declined by 14.86% in the last year. Also, the company saw its stocks plummet by over 70% since 2020. Previously, Alibaba was fined a record $2.8 bn in 2021 for alleged monopolistic behaviour. Since then, the company has faced setbacks with scrapped cloud IPO plans, a management shake-up, and the compounding effect of slowed domestic economic growth.
Chinese gaming behemoth Tencent saw its market cap reduce by 11.4% and its stocks fall by 7.45% in 2023. Besides, the company witnessed a dramatic depreciation of around $43.5 bn in market value in a single day in late December 2023. This abrupt decline followed China’s imposition of new regulations aimed at curbing excessive gaming and in-game purchases, impacting other firms in the country as well, like Netease.
China’s Baidu, a major global internet company, however, saw its stocks rise by 4.12% and its market cap increase by 5.34% during the same timeframe.
“Baidu managed to exceed analyst expectations in terms of revenue as well as earnings in the most recent quarter sustaining solid revenue, profit, and cash flow,” writes analyst Baptista Research on Smartkarma.
“The strategic reinvention of the product portfolio with Ernie and Ernie bot played a pivotal role in achieving these results. Baidu seized new opportunities,” as per the analyst.
In October 2023, the company unveiled its most recent AI model, Ernie 4.0.
However, there are concerns over how Baidu will address chip sanctions as China faced a substantial setback in the import of integrated circuits (ICs) last year, directly impacted by US restrictions. ICs are crucial for the development of AI technologies.
Moreover, China’s technology industry is also facing a myriad of other issues as well. “China’s tech sector, more broadly, has experienced massive layoffs, hiring freezes, and systematic pay cuts over the past two years, directly affecting its R&D staff and capacity,” says research provider Rhodium Group.
US tech giants gain $3.9 tn in market value in 2023
In contrast, the American MAMAA companies (acronym for Meta, Amazon, Microsoft, Apple and Alphabet) had a much better year in the stock market in 2023.
Stocklytics.com points out that US-tech giants such as the MAMAA giants collectively contributed to a staggering $3.9 tn increase in their stock value throughout last year. This marks a historic high in the market.
Meta, formerly known as Facebook, emerged as the star performer of 2023, boasting a 188% year-over-year increase in its market capitalisation, the most substantial among the prominent big five US tech giants.
Nvidia’s stocks experienced a rise of over 196% in the first six months of 2023, fueled by the increasing prominence of AI. Last year, the company achieved a milestone by surpassing $1 tn in market capitalisation, making it the first US chipmaker to join the prestigious trillion-dollar club.
Meanwhile, the Nasdaq 100 soared by 53.8% (price return basis) last year. In comparison, the SSE Science and Technology Innovation Board 50 Index, representing the collective performance of key technology-driven enterprises in China, declined by 11.24% in 2023.
“(US) tech sector stocks gained more than 50% last year, fueled by AI and signs of improvement in the cloud and chip markets,” says Charles Schwab.
“This year is when the AI rubber arguably hits the road as investors seek evidence that tech companies can apply the technology in ways that lift revenue. Upcoming Q4 results could give investors clues into 2024,” adds the asset manager.
Concurrently, asset managers remain optimistic regarding China’s tech landscape this year. Global X highlights numerous opportunities within China’s IT and AI stocks. These sectors, the ETF provider suggests, can provide potential alpha opportunities for investors seeking growth in areas less susceptible to economic fluctuations.
“We expect these sectors to benefit from global digital transformation trends and China’s commitment to technological self-sufficiency, likely making them attractive regardless of cyclical economic shifts,” adds Global X.
