00:01China's tech stocks are surging after the government released a plan to expand the use of AI.
00:07The State Council has set a target for 2027 saying by that stage 70% of China's economy should be using intelligent devices and AI agents.
00:18Now the move is boosting companies like Cambricon which makes the chips that power AI systems.
00:25Our correspondent Michael Marilia has joined us on set and Michael just tell us a little bit more about these guidelines.
00:32Yes, so this is an initiative called AI Plus which the Chinese government is using to really supercharge the AI sector and the use of AI.
00:42And we've seen Chinese tech stocks really doing well on the market today.
00:49But the story goes beyond just this initiative which the government is proposing.
00:54And if you really want to see where it started, you've got to take a look at Cambricon's share price over the last six months.
01:03So let's take a look at that.
01:05And as you can see, if we go back to the beginning of the year, we're looking at a share price of 646 yuan, which is about $90.
01:14And it's more than doubled since then, climbing all the way up to $1,385, which is about $165 to $170 on Monday.
01:24So August 25th.
01:26The reasons behind that, well, it seems like there is a push within the AI sector to source chips made in China.
01:35That's because of concerns about securing chips from the United States.
01:40We know that the Trump administration has placed restrictions and limits on the export of chips from the US to China.
01:48And it seems there is now a push to get local chips.
01:54Let's take a quick look at the impact of that on Cambricon's results.
01:59Some brilliant numbers over the last six months, $403 million in terms of revenue.
02:05That's more than 4,000 percent higher than the same period the year before.
02:12So clearly this push within China's tech sector to get locally made chips is paying off for companies like Cambricon.
02:21Jeff?
02:22Well, I presume this is great news for Chinese chip makers, isn't it?
02:25Well, absolutely.
02:26And you have to consider as well that they are up against a giant in the form of Nvidia.
02:33And we must stress we have a long way to go until we can say that these Chinese chip makers are the same size as Nvidia.
02:41Let's take a look at some of the numbers for Nvidia.
02:45And you'll see here these figures are just for the first quarter of the year revenue of $44 billion.
02:52So really massive.
02:53And just over a month ago, we got the news that Nvidia had reached a market capitalization of $4 trillion,
03:00making it the biggest company on the planet.
03:04So Cambricon has a long way before it gets to that point.
03:08But if we take a look at Nvidia's journey over the last couple of years, we may get some clues as to what could happen to Chinese chip makers.
03:19You'll remember that OpenAI released ChatGPT in early 2023, and that gave Nvidia a huge boost.
03:28It really set it on a course for massive, massive growth.
03:33So we were looking at $17.84 in terms of the Nvidia share price at the beginning of 2023.
03:39It's now 10 times higher.
03:41August 26th, so Tuesday, it was above $181.
03:46So Chinese chip makers will be hoping that this AI plus initiative by the government and this attempt to source chips locally will set it on a similar path,
03:58a similar growth trajectory to what we've seen with Nvidia.
04:02Sally, Jeff?
04:03Michael, thank you very much indeed for that.
04:05Well, let's bring in Santosh Rao, head of research and a partner at Venture Capital Group Manhattan Venture Partners.
04:17Now, Santosh, I mean, this is astonishing what's happening with Cambricon.
04:24I think we might have a slight problem with our guests.
04:28No, I'm being told he's with us.
04:30Santosh, sorry about that.
04:32We're hearing it's not yet at the levels of Nvidia, but is this the beginning of massive growth for Cambricon in your view?
04:41Yes.
04:42Thanks for having me.
04:43Great to see you.
04:44Well, I think this is an incremental positive.
04:47Like your earlier speaker said, you know, it's still early.
04:53It's a long way to go.
04:54Nvidia is very well established.
04:56It's deep in its innovation curve.
04:58And this one will need to catch up there.
05:01But this is a great positive.
05:03And that's where this was expected.
05:05Because just looking at the US's policy on exports and the technology curves, I think China was going to do it and is doing it now.
05:14And now they have their own ingrown chips, which is great.
05:18But it's going to take some time.
05:19I mean, Nvidia chips are way advanced.
05:21The technology, they're vertically integrated with the software that they have.
05:25So I think that all that will take some time for the company to develop.
05:30But they are definitely moving in the right direction.
05:32It's going to help the Chinese companies, help the ecosystem, the AI ecosystem in China.
05:39So all that is good.
05:40I think net-net, the headline is very good.
05:42Good development.
05:43But expected, nothing, not surprising.
05:45It was expected that they would go this way.
05:48And what does it mean for other chip makers in the Chinese market?
05:53I'm thinking for Huawei, for example.
05:55Are they going to be on a similar trajectory?
05:59Yes, everyone will try to emulate that.
06:04The whole push by the government is to be independent.
06:07Just move away from dependence on the Western or the developed technologies and develop in-house.
06:13So you will see it will help.
06:16It will spread and it will be good for everyone there.
06:19And that's how it is.
06:20I mean, you saw it here.
06:21Nvidia gave rise to AMD, to other stuff, other companies to, forgetting the name, Broadcom.
06:29So all these companies will come out different variations of the AI chips, whether it's specialized chips or just LLM chips, broader purpose chips.
06:38So I think you will see a whole ecosystem develop around this.
06:41But the fact that you can do it in-house, that's a great word of confidence that really helps to push the needle forward in the right direction.
06:49How long do you think it would be before China has its own AI hub?
06:53Because that's the ultimate goal, isn't it?
06:56A system that is currently very globally interwoven, that countries like America and China have pretty independent chip hubs.
07:06Yes, it's going to take some time.
07:08The speed at which it's growing is amazing.
07:11The technology development and the know-how that's going into it, it's just moving at super fast speed.
07:17It's going to take some time and there's a lot of catching up to do, but it's definitely on the right track, right trajectory.
07:24I would say if I had to look at looking at the timelines of every other thing, probably two or three years to really get a fully integrated, self-sufficient, very reliant, very capable, very high powered GPUs and all that.
07:37So I think it'll take some time, but they'll get there at some point.
07:40We saw with DeepSeek and we saw with other ones.
07:44They will catch up.
07:45They will come there.
07:46But it's going to take some time because the US is way ahead.
07:49It's a deep technology and the compute power of the chips of American chips is very fast, very high.
07:56And China will catch up at some point.
07:58Of course, NVIDIA is the big guy and we're expecting their results later today.
08:03What's the sentiment on the markets?
08:06Well, the sentiment is that demand is there.
08:09Supply is there.
08:10They will have a beat and race quarter.
08:13The only issue is what is priced into the stock already.
08:17That's the whole issue.
08:18As far as their performance is going to be, it's very good.
08:21I expect a good quarter because looking at the data points out there and looking at some reports out there by analysts who cover it very closely, the demand and supply is very good.
08:33So I am expecting a good quarter.
08:36But the main thing I'm looking for is the commentary in terms of what they are seeing in terms of the demand out there.
08:42And because supply is there, it's the demand out there.
08:45Is it saturated?
08:46Is it still growing?
08:47And those are the things that we'll be looking for in terms of where NVIDIA is right now.
08:52Well, thank you so much.
08:53Santosh Rao, Head of Research and a partner at Venture Capital Group Manhattan Venture Partners.
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