(Yicai) Dec. 8 -- Chinese internet giants have taken a more cautious approach to artificial intelligence spending compared to their US rivals, with no sign of the so-called "circular financing", so it is unlikely that there will be an AI bubble in China, according to an analyst at UBS Securities.

Leading Chinese internet companies are estimated to have capital expenditure of about CNY400 billion (USD56.6 billion) this year, about one-tenth of that of US peers, but the two groups have developed AI models with similar performance, Xiong Wei, a China internet industry analyst at UBS Securities, said in a report on Dec. 5.

The capital expenditure of big Chinese cloud service providers accounted for 10 percent of their revenue and 50 percent of their cash flow from operating activities, compared with 27 percent and 71 percent for their US counterparts, respectively, according to data from such companies' third-quarter financial reports.

The leading Chinese AI model developers are funded by parent firms' internal cash flow, instead of third-party financing, so there is no circular financing as in the United States, which refers to one company investing in another that then uses the funds to buy products from the investor, forming a closed capital cycle, Xiong pointed out.

For example, US chip giant Nvidia agreed to invest up to USD100 billion in OpenAI in September, with the ChatGPT developer to use the money to buy millions of graphics processing units from Nvidia to build AI infrastructure.

However, the circular financing model has raised market concerns. According to a research report recently released by Citic Securities, the probability of OpenAI falling into an operating crisis and the AI industry's investment becoming more rational in the next 12 months is 60 percent, while those for achieving major AI breakthroughs or the AI bubble bursting are at 20 percent.

China's AI model capabilities will iterate rapidly and catch up to the US next year, but unlike how ChatGPT and Gemini dominate in the US, its applications market will be more scattered, UBS Securities said.

Regarding commercialization, China and the US have similar paths, focusing on cloud services and advertising, and developing more application scenarios, including AI agents, AI-powered native advertisements, multimodal, and edge AI, UBS Securities noted.

Editors: Dou Shicong, Martin Kadiev