Behind the Sky-High Valuation of China’s AI IPOs
The Takeaway
- Six Chinese AI and chip startups raised over $4 billion in recent IPOs.
- Chinese AI and chip firms trade at significantly higher revenue multiples.
- Investors anticipate strong future revenue growth for China’s AI sector.
China is letting AI and semiconductor startups go public at a furious pace. Since December, two developers of large language models and four designers of graphics processing units have listed on stock exchanges in Hong Kong and Shanghai, raising a total of over $4 billion.
At least two more are in the pipeline. Kunlunxin, the chip arm of Baidu, is seeking to raise up to $2 billion in Hong Kong, according to Bloomberg. Enflame, a Shanghai-based GPU designer 20% owned by Tencent Holdings, was approved on Thursday to raise 6 billion yuan ($860 million) in the city’s bourse.
The rush of initial public offerings is a marked change from the past few years, when Chinese securities regulators virtually froze approvals of tech IPOs. And it reflects China’s desire to boost its AI and chip sector by making it easier for startups to raise money.
The half-dozen companies that have so far started trading have had a mixed performance. Shares of Zhipu, an AI model developer founded by researchers at Tsinghua University, and of Iluvatar CoreX, an AI chip firm that has backing from Neil Shen’s HongShan, have gained more than 20% in the past few weeks. Others have fared less well or even dropped below their IPO prices, presumably reflecting concerns about their business prospects.
The one thing these companies have in common is they are all losing money, yet they’re still trading at much higher valuations than comparable companies in the U.S., at least on a multiple of last year’s revenue.
Biren Technology, an AI chip designer broadly similar to Nvidia, is trading at a whopping 248 times its last 12 months’ revenue, according to S&P Global Market Intelligence. For context, the hugely profitable Nvidia is trading at 24 times last year’s revenue.
Even a chip designer whose stock has not traded well, MetaX, is trading at a higher valuation than Nvidia.
It’s a similar story with large language model developers Zhipu and MiniMax, which are trading at 178 and 252 times last year’s revenue, respectively. That’s much higher than the 57 times multiple of 2025 revenue implied by the $750 billion valuation at which the still-private OpenAI is currently reported to be raising money.
For fast-growing companies, investors typically look at projected future revenue when calculating multiples, rather than multiples of the last 12 months’ revenue. Estimates for future revenue aren’t available for most of the Chinese firms, which means forward multiples aren’t available. But in the one case where such data is available—Zhipu—the picture is the same. Zhipu is trading at 62 times forward revenue, according to S&P Global Market Intelligence. That’s more than double OpenAI’s estimated 2026 multiple of 25 times, assuming it raises money at $750 billion, and if we use its projection of $30 billion for 2026 revenue.
The valuations in China aren’t as frothy as they appear, given the chances that China’s AI industry will take off soon. That would underpin significant revenue growth in the not too distant future, according to Duane Kuang, founding managing partner of Qiming Venture Partners.
“U.S. companies and their revenues provided a path for Chinese companies’ revenue growth. Based on the size of the market size and technology development in China, Chinese companies’ revenues will grow significantly and the multiples will come down and edge close to their U.S. peers. The current valuations reflect that confidence,” said Kuang, an early investor in Zhipu and Biren.
Edison Lee, an analyst at Jefferies, sees plenty of room for Chinese AI valuations to rise. He estimates that the combined market capitalization of China’s AI-related companies, including software firms and chip designers and manufacturers, is “now only 8% of its U.S. peers, but Chinese cloud providers’ capital spending is 18% of that of the U.S.,” he noted. That implies those Chinese businesses have a lot of room to catch up to the U.S.
China’s AI companies were mostly founded over the last five years, when U.S.-China relations started to sour, and Washington started to contain Beijing’s rise by restricting technology exports to the country.
The U.S. restrictions served as a wake-up call for Chinese leaders, who mobilized resources and formulated policies to nurture homegrown champions so the country can one day wean itself off American technologies.
It’s a work in progress. AI developers say China-made chips still lag far behind Nvidia’s, and LLMs developed by the likes of OpenAI, Anthropic and Google still top various industry benchmarks. But Chinese investors are optimistic about the local industry’s prospects.
Those investors demonstrated that optimism with their reaction to Zhipu’s release last Wednesday of an open-source AI image model trained entirely on chips from Huawei Technologies, the first time a Chinese state-of-the-art AI model had been trained on domestic chips. Zhipu’s share price soared 38% in the three days after the model’s release.
Still, challenges remain for the newly listed chipmakers. “As far as the newly listed GPU players are concerned, the biggest challenge is securing enough manufacturing capacity in China to boost their output,” Lee said. “We expect China’s GPU market to be very competitive in the next few years, even though demand will also be strong, driven by high growth in AI applications.”