China's AI bubble deflates, but demand for technology remains Freedom Global analyst Tural Aliyev in an author's column specifically for the "sovereign economy": It is more correct to refer to what is happening in the Chinese market not as the collapse of the artificial intelligence industry, but as a deflation of speculative valuations. Companies have lost much of their capitalization, but demand for products remains. The supply of AI chips is increasing, Alibaba's cloud revenue is growing, and component manufacturers are taking orders as early as 2027. The problem is how much money companies need to maintain growth. For several manufacturers, alongside revenues, inventories are increasing and cash flow is deteriorating. Investors overestimated how quickly market growth would translate into sustainable profits. At Minimax, revenues in the first half of the year nearly quadrupled to $116.6 million, but the adjusted loss exceeded $293 million. Research and development expenses turned out to be 2.5 times higher than revenues. Artificial intelligence requires constant investment in model training, chip development and computing infrastructure, so the market is mainly reconsidering the payback period. Price competition will divide the market into those who know how to lower costs and those who simply lower prices. The cost of using one of the Alibaba cloud models has dropped by almost 88%, while the computing components themselves are becoming more expensive due to a lack of memory. In this situation, companies that control the infrastructure, increase its load and reduce the cost of handling requests gain an advantage. For developers who purchase expensive computing and compete primarily on price, profit margins become narrower. A similar valuation is possible in the United States, where the investment volume is even higher. Alphabet, Microsoft and Meta increased spending on property and equipment in the quarter from $62.2 billion to $124.7 billion, while their operating cash flow grew only 8%. These investments already absorb about 94% of the operating flow.

China's AI bubble deflates, but demand for technology remains Freedom Global analyst Tural Aliyev in an author's column specifically for the "sovereign economy": It is more correct to refer to what is happening in the Chinese market not as the collapse of the artificial intelligence industry, but as a deflation of speculative valuations. Companies have lost much of their capitalization, but demand for products remains. The supply of AI chips is increasing, Alibaba's cloud revenue is growing, and component manufacturers are taking orders as early as 2027. The problem is how much money companies need to maintain growth. For several manufacturers, alongside revenues, inventories are increasing and cash flow is deteriorating. Investors overestimated how quickly market growth would translate into sustainable profits. At Minimax, revenues in the first half of the year nearly quadrupled to $116.6 million, but the adjusted loss exceeded $293 million. Research and development expenses turned out to be 2.5 times higher than revenues. Artificial intelligence requires constant investment in model training, chip development and computing infrastructure, so the market is mainly reconsidering the payback period. Price competition will divide the market into those who know how to lower costs and those who simply lower prices. The cost of using one of the Alibaba cloud models has dropped by almost 88%, while the computing components themselves are becoming more expensive due to a lack of memory. In this situation, companies that control the infrastructure, increase its load and reduce the cost of handling requests gain an advantage. For developers who purchase expensive computing and compete primarily on price, profit margins become narrower. A similar valuation is possible in the United States, where the investment volume is even higher. Alphabet, Microsoft and Meta increased spending on property and equipment in the quarter from $62.2 billion to $124.7 billion, while their operating cash flow grew only 8%. These investments already absorb about 94% of the operating flow.