As US tech giants face growing market scrutiny over their swelling artificial intelligence budgets, China’s top technology firms are confronting a similar reckoning: proving that billions of dollars spent on AI infrastructure will yield sustainable profits. Here is a run down on how Chinese tech giants are navigating the AI monetisation challenge. Why are global investors nervous about ‘big tech’ AI spending? Global market anxiety intensified after Facebook owner Meta Platforms saw its Nasdaq-listed shares fall about 8 per cent in after-hours trading on Wednesday following its second-quarter results. Despite beating revenue expectations with US$60.8 billion, Meta’s rising AI spending and a drop in free cash flow alarmed investors. Meta’s slip followed Alphabet’s quarterly earnings last week, where the Google parent logged its first-ever negative quarterly free cash flow as massive AI outlays outpaced revenue generation, fuelling fears of an AI bubble. Are Chinese firms facing similar pressure to justify AI expenditure? Yes. Chinese tech powerhouses and frontier AI labs are locked in a parallel race, escalating capital expenditure to match domestic rivals and US competitors. However, the battlefield is rapidly shifting from model capabilities to capital efficiency and return on investment. Early signs of this shift emerged in the most recent quarterly results from Alibaba Group Holding and Tencent Holdings, as AI products begin to show commercial traction. Revenue at Alibaba’s cloud computing unit, the e-commerce giant’s main AI driver, jumped 38 per cent year on year in the March quarter. AI-related products generated nearly 9 billion yuan (US$1.3 billion), marking an eleventh consecutive quarter of triple-digit growth. Alibaba Cloud expected its annualised recurring revenue – a key metric that extrapolates current earnings into yearly income – from AI models and application services to cross 10 billion yuan in the June quarter and reach 30 billion yuan by the end of the year, signalling surging adoption. While Tencent did not break out revenue figures for specific AI products, analysts at Sealand Securities said in a research note in May that AI-driven recommendation and targeting engines were improving advertising efficiency and pricing across its ecosystem. Alibaba owns the South China Morning Post. What is the investor sentiment on China’s AI spending spree? Despite scepticism over the sheer scale of capital outlays, some industry watchers argue that China’s vast addressable market offers a solid growth runway. In a research note to clients on Thursday, HSBC analysts acknowledged the market’s critical stance on hyperscale spending, but maintained that Chinese tech giants like Alibaba were well positioned to justify their investments over time. The total addressable market for enterprise AI was estimated at US$1.4 trillion globally and US$178 billion in China alone, according to HSBC analysts led by Charlene Liu, head of Asia-Pacific internet and gaming research. Globally, investment bank Morgan Stanley remains bullish on hyperscalers, estimating that AI infrastructure rentals, model access and AI-enabled services could eventually generate attractive returns of between 25 per cent and 50 per cent. The bank’s analysts led by Brian Nowak said in a recent note that rising demand for data-centre capacity would continue to favour heavyweights like Amazon.com, Google, Microsoft and Meta.