China’s Tencent and Alibaba bet on AI to grow as competition intensifies

Chinese tech giants are banking on artificial intelligence to bolster their businesses, touting new features for their existing services as well as new generative AI tools, as hype around the technology reaches sky-high heights.

Ali Baba, Tencent And Baiducollectively known as “BAT”, all sang the praises of generative AI – a subset of artificial intelligence that deals with tools capable of creating text, images and other content in response to user prompts – during the company’s earnings calls this month.

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Inspired by ChatGPT, the popular Microsoft-backed AI chatbot that has become renowned for its ability to hold more human-like conversations, such systems have sparked huge interest from investors and a fiery race among companies seeking to integrate the technology. or develop their own alternatives.

In the case of Chinese companies, generative AI tools are expected to be more restrictive in terms of what users can or cannot say due to Beijing’s tight stranglehold on internet services in the country.

But the Chinese government has not chosen to kill ChatGPT-like products, although ChatGPT itself remains inaccessible in the country. Instead, Beijing has introduced new rules to manage how companies develop these tools.

The Chinese tech giants were quick to use this more open attitude to new technological innovations – a stark contrast to its approach to cryptocurrencies – to their advantage.

Last week, Chinese tech giants expressed their belief that they see generative AI as a technological breakthrough. “Generative AI represents a tremendous opportunity for us. It can be compared to the introduction of the Internet and smartphones,” said Robin Li, CEO of Baidu, during the company’s first quarter earnings call. Company.

“To seize this opportunity, we leveraged our technological capabilities and extensive experience in search, knowledge graph, and dialog,” he added.

Baidu said it was awaiting regulatory approval for its chatbot service Ernie Bot, a rival to OpenAI’s ChatGPT.

On Wednesday, Tencent confirmed the existence of a so-called foundation model it is working on called HunyuanAide. Core models are large AI programs trained on large amounts of data so that they can be adapted to solve a wide range of tasks.

Meanwhile, Tencent Chairman Martin Lau said the company is “making good progress” with the technology. “I think one of the biggest strengths for us is obviously use cases,” Lau said on the company’s first-quarter earnings call. “We have different products [and] the teams are already planning interesting offers alongside… their products.”

Alibaba, which developed its own ChatGPT-style generative AI tool Tongyi Qianwen earlier this year, said its system could help accelerate customer adoption of its cloud computing service. Alibaba has seen strong demand for Tongyi Qianwen so far, with 200,000 corporate customers requesting trial access.

“The development of AI technology presents a huge new opportunity for the cloud industry, as artificial intelligence applications will drive an exponential increase in the demand for computing power,” said Daniel Zhang, CEO of the company. , during its fiscal fourth quarter earnings call.

“That kind of computing power needs to be delivered as some sort of utility or infrastructure. So this is a huge opportunity for us moving forward.”

Zhang’s comment came as Alibaba announced plans to spin off its cloud computing unit as a separately listed entity.

The tech giants’ ambitions on AI reflect a global escalation in the arms race that is now underway as countries seek to take leadership on the technology. Microsoft And Googletwo of the biggest tech companies, are currently dominating the conversation around AI with their respective advanced language processing technologies.

Dan Ives, managing director of equities at Wedbush Securities, told CNBC that generative AI is seen as a “paradigm shift” in the tech industry. China, in particular, “has some of the most advanced AI technologies in the world,” he added.

“We think Game of Thrones is also happening in the Chinese tech market, because the gloves are in place for that battle,” Ives said.

“Big Tech stalwarts such as Alibaba, Tencent, and Baidu, among others, are trying to put an iron fence around its installed base on AI. Many innovative vendors are tackling this market and Chinese technology is now in the midst of a century-long shift around AI.”

Comments from some of China’s biggest tech companies last week suggest that Beijing is looking to step up its rivalry with the United States over AI.

However, there are fears that a US ban on Chinese companies buying advanced chips and chipmaking equipment could set back AI progress in China. Alibaba, Baidu and Tencent do not produce their own chips, but instead rely on chipmakers like Nvidia to obtain the necessary processors for their cloud computing operations. This makes them vulnerable to US sanctions

Over the weekend, China banned its domestic companies from buying equipment from US chipmaker Micron in retaliation for US sanctions.

“I think in the future, AI obviously requires a lot of computing power. Therefore, it is difficult to see how China can manage to win this competition if it continues to ban this crucial technology from its industry. of AI,” Hao said. Hong, chief economist of Grow Investment Group, told CNBC “Squawk on the Street” on Monday.

For its part, Tencent said the chips are still “widely available” at this time and there are “certain workarounds” that allow it to continue to maintain access to graphics processing units in China. These GPUs are used to power AI applications.

One thing that’s clear from the earnings reports and calls from the Chinese tech giants last week is that they are aware of – and eager to comply with – an impending regulatory tightening on AI.

“We felt that the government’s general stance was in favor of regulation – but the industry needs to be regulated,” Tencent’s Lau said. “And I think it’s not something specific to China… If you look at the United States, there’s a lot of public discussion about regulation.”

Baidu’s Li said the company “has put a lot of effort into technology and compliance development to ensure that our products and services meet applicable regulatory requirements.”

“For important and sensitive topics, we need to make sure that the AI ​​will not hallucinate. Since LLM is more or less a probabilistic model, this task is not at all trivial,” he added. . LLMs are big language models, i.e. advanced AI algorithms trained on huge datasets to process, understand and produce human language.

“The requirements aren’t final yet, so we need to keep updating our strategy as it evolves.”

This follows a harsh crackdown by China on its domestic tech companies, which only began to ease after it wiped $1 trillion from the market value of the combined industry.

China had cracked down on some of its most valuable tech companies, from Alibaba and Tencent to Didi and Meituan, in measures that have been interpreted as keeping companies online and preventing them from abusing their power to market.

SHOW: Can China’s ChatGPT clones give it an edge over the US in an AI arms race?