Outperforming 97% of its peers, a top fund is bullish on Chinese tech stocks: increasing holdings in Alibaba and Tencent, betting on the Chinese AI application boom.

An excellent performing emerging market fund is increasing its investment in large-scale artificial intelligence companies in China, betting that these companies are more valuable than the US tech giants investing heavily in expansion. Caroline Cai, CEO of Pzena Investment Management, said that her $3.9 billion fund has been increasing its holdings in companies such as Tencent (00700) and Alibaba Group Holding Limited Sponsored ADR (BABA.US). She believes that these companies are undervalued and considering their potential to change daily life, they have greater room for growth. Cai stated in an interview in New York, "You don't need to pay a high price for the productivity improvements that artificial intelligence may bring." She added that this strategy should work in the early stages, as it is still difficult to predict the ultimate winners and losers. As artificial intelligence technology becomes the next battleground for technological dominance, investors are weighing the prospects of artificial intelligence in the US and China. In the US, major companies are investing billions of dollars in building data centers and computing power, competing to create the most advanced models. In contrast, Chinese internet companies are investing much less money, focusing more on developing applications that embed artificial intelligence into existing platforms. Data shows that Pzena's emerging market value fund has outperformed 97% of similar funds in the past five years. So far this year, the fund's performance has also outperformed 90% of similar funds. Its main holdings include Samsung Electronics, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), and Alibaba Group Holding Limited Sponsored ADR. Cai is a co-portfolio manager of Pzena's assets of approximately $67 billion. Cai stated that part of the funds used to increase holdings in Alibaba Group Holding Limited Sponsored ADR and Tencent stocks came from reducing holdings in Samsung and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, as the fund believes that the attractiveness of these two companies is not as strong as before. For the South Korean chip manufacturer, the investment logic has been validated faster than expected due to the rising demand for memory chips driven by artificial intelligence. Her views contradict the overall market sentiment. In recent months, investors have been selling stocks of Tencent and Alibaba Group Holding Limited Sponsored ADR, fearing intensifying competition in the platform business in China, while some investors have turned to invest in AI startups like MiniMax Group Inc. One of the key issues in the artificial intelligence field for investors is whether massive capital expenditures can bring tangible returns. In the US, the four largest tech companies predict that their capital spending could reach approximately $650 billion by 2026, mainly for building new data centers and related equipment. Chinese companies are also increasing spending, although at a much slower pace than other countries. Industry research estimates that by 2030, leading internet companies including Alibaba Group Holding Limited Sponsored ADR, Tencent, Baidu Inc Sponsored ADR Class A, JD.com, Inc. Sponsored ADR Class A, and Meituan, will spend over $240 billion. While this number may continue to rise, these companies collectively have cash reserves of $224 billion, providing a certain buffer. Cai stated that the really interesting aspect is how the funds are being utilized. "When you look at the emerging models of quality and the focus on application areas, you will find that this may be a more interesting AI profit model than developed countries," she said.