China AI Model: Smarter Spend, Tight Race, Cloud Upside

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China AI Model: Smarter Spend, Tight Race, Cloud Upside

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Internet - China

China AI Model: Smarter Spend, Tight

Race, Cloud Upside

Industry Overview

We initiate Zhipu and MiniMax with Buy ratings (see reports). In conjunction with our 15 June 2026

initiations, in this report we provide a concise sector overview on China AI model market. Equity

China

AI segmentation: from frontier scale to smarter spend Internet/e-Commerce

A two-speed global AI market is emerging: U.S. players are likely to lead in frontier

capabilities, while Chinese models are gaining traction as cheap-and-capable performers. Table of Contents

Despite compute constraint, Chinese players are optimizing for smarter spend—as

pricing for frontier models increases, this cost-performance advantage becomes Focus charts 2

increasingly relevant globally, particularly for high-volume, non-critical use cases. Who’s who in China AI model market 3

Smarter spend: a cheap-and-capable AI value

Hyper growth, neck-to-neck race, enterprise-led revenue market emerging 5

China’s AI model landscape is vibrant and intensely competitive, with limited capability Incumbents vs. Independent AI labs: growth

gaps across incumbents (e.g. Alibaba, ByteDance) and independent AI labs (e.g. strategy diverging

DeepSeek, Zhipu, MiniMax). In this environment, marginal model superiority is unlikely

to drive durable profits—compute access, ecosystem integration, and distribution are

the key moats, structurally favoring incumbents. With stronger balance sheets and AlexResearchLiu >>Analyst

integrated cloud stacks, incumbents can better tolerate low model layer profitability to Merrill Lynch (Hong Kong)

+852 3508 5090

drive compute cross-selling. Meanwhile, DeepSeek’s improving capabilities and limited alex.liu3@bofa.com