The cold thinking behind the soaring stock price of HKUST, the artificial intelligence to achieve profit is not so simple

Chinese speech recognition software developer Iflytek (Keda News) has not been able to meet analysts' profit expectations, but it is one of the hottest stocks in China. As of December 18, the stock has soared 117%. This is entirely due to the recent investment boom that has swept China's $7.5 trillion stock market – artificial intelligence.

HKUST and other AI-related companies dominate the large-cap stocks, and the acquisition frenzy has added $61 billion in market value to China's five most popular artificial intelligence players, making some stocks the most active in the world. The ranks of trading securities. BOE is a Beijing-based LCD panel manufacturer and is currently developing a system to help drivers avoid traffic accidents. In November, the company’s stock trading volume could reach $2.5 billion a day, a figure that has surpassed the merger of Wal-Mart and AT&T.

“Retail investors are very keen on companies with artificial intelligence stories,” said Zhang Gang, a strategist at Central China SecuriTIes in Shanghai. More and more analysts and fund managers have warned that the rally is too fast to be cautious. They say that many artificial intelligence technologies are unlikely to prove to be profitable, and it may take years to make a significant contribution to the company's profits. “Almost every company is on the starting line,” said Wang Menghai, a fund manager at Fullgoal Fund Management Co. in Shanghai. “The short-term gains in these stocks are a bit too exaggerated.”

Since the stock began trading in 2008, HKUST has been behind analysts' net income expectations, and its current market value has reached $12.3 billion. The company expects a P/E ratio of 109 times in 2018, while the average P/E ratio of the China CSI 300 Index is 13 times, while the global robotics and artificial intelligence theme index has a P/E ratio of 25 times.

Kenny Wen, a strategist at Everbright Sun Hung Kai co., said that retail investors are an important force in China, but rarely pay attention to performance and other indicators. Xia Yu, an analyst at ICBC Credit Suisse Asset Management Co. in Beijing, said some companies are using borrowed money to expand their stakes in stocks, including HKUST and BOE.

The Chinese authorities are intensifying this upsurge and have announced ambitious plans to lead the artificial intelligence in the world. The State Council of China publicly stated in July that it plans to increase the output of related industries to 10 trillion yuan ($1.5 trillion) by 2030, which is equivalent to one-tenth of China’s 2016 GDP. . Last month, the state identified Keda Xunfei, Tencent, Alibaba and Baidu as leaders in artificial intelligence technology. The government's favor has become a bright light in the hearts of domestic stock traders.

Chinese AI stock fans said that the high price-earnings ratio is determined by the company's long-term potential. Sam Kuo, UPAMC Global Innovation Technology Fund Manager in Taipei, said investors should pay more attention to sales growth due to many AI-related startups. In August, HKUST also issued a similar view that Amazon has become one of the most valuable companies in the world, despite little or no profit for many years. HKUST News has not responded to this comment.

A similar Chinese stock market boom (including those driven by government policies) has not yielded good results. In 2013, after policymakers announced plans to establish a free trade zone in Shanghai, the share price of Shanghai companies soared. After a few months, investors realized that it may take years for companies to profit from loose capital controls.

Joel Ying, an analyst at Nomura Holdings Inc. in Hong Kong, said one of the risks facing AI-related stocks is that the sector is becoming more and more crowded. Although the real-time translation software of HKUST has helped it win the title of “the most intelligent” company in China in the 2017 MIT technical review, it faces a competitive threat at home and abroad. At present, Chinese giants including Tencent and Alibaba are investing heavily in artificial intelligence, and international companies such as Google parent company Alphabet Inc. have developed this technology for many years. Dai David Dai, an analyst at Sanford c. Bernstein in Hong Kong, said. “Artificial intelligence products take a long time to make money, and they need to invest a lot of money, so the revenue may not grow as fast as people expected.”

Chinese giants, including Tencent and Alibaba, are investing heavily in artificial intelligence, and international companies including Google's parent company Alphabet have been developing the technology for years. “I will be cautious,” said David David, an analyst with Sanford c. Bernstein in Hong Kong. “Artificial intelligence products take a long time to make money, and they need to invest a lot of money, so the revenue may not grow as fast as people expected.”

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