Major Chinese technology companies are set to become significantly more profitable in the near future. SCMP published a forecast from analysts at the well-known investment bank. Large tech giants are expected to capture a substantial share of AI-driven profits. The process is projected to take approximately two to three calendar years. The forecast is contingent on an easing of strict chip export restrictions. Currently, the bulk of the margin is captured by hardware and related services providers. The artificial intelligence market continues to face a severe capacity shortage. Head of Research Kenneth Fong spoke at an event in Shenzhen. The expert considers a return to an active monetization phase for platforms to be a realistic scenario.
The forecast came against the backdrop of a sharp increase in spending by Tencent and Alibaba. Alibaba nearly tripled its capital expenditures in the second quarter. Spending reached 52 billion Chinese yuan for the quarter. This sum is equivalent to approximately $7 billion. The company's free cash flow turned negative for the first time in a quarter. The cash outflow amounted to 13.8 billion yuan. Alibaba posted a significant negative free cash flow figure. The indicator reached 44.7 billion yuan. Total expenditures reached 67.7 billion yuan. The market is cautious about such massive financial commitments by investors. Analysts are factoring in a slowing macroeconomic environment and near-term pressure on earnings.
Annual company spending equals roughly one and a half years' worth of cash flow. These expenditures are necessary to maintain positions in the competitive race. The combined spending of Chinese companies amounts to one-seventh of their American counterparts. The bank attributed the gap to limited access to chips. The smaller scale of business also affects overall financial metrics. Analysts cite high cost efficiency as a key strength of the local sector. Analyst Xiong Wei assessed the cost of training Chinese neural networks. Training costs amount to less than 10% of the level seen among global leaders. The average API price for major models is also low. The figure is less than 20% of the level of international competitors.
The dominant factor will be platforms with large, active user bases. Large volumes of data and service distribution channels will drive profitability. In August, Alibaba raised substantial funds for further development. The company placed 710 million new shares on the market. The tech giant raised more than $10 billion for AI development. Chinese platforms are steadily laying the groundwork for future market dominance. Artificial intelligence is gradually reshaping the balance of power in the global economy. The investments will help companies accelerate the development of their own proprietary algorithms. Global experts are closely monitoring the progress of Asian developers. The technology race demands constant and very substantial financial investment.