Zhipu Shares Rocket 170% Amidst Intense China AI Showdown: Model Quality Trumps Price Cuts

Zhipu Shares Rocket 170% Amidst Intense China AI Showdown: Model Quality Trumps Price Cuts​

A high-stakes winner-loser trade is solidifying within China’s rapidly evolving artificial intelligence sector. Investors are increasingly differentiating between market leaders, betting heavily on the company perceived as having a superior model over its struggling rival.

Shares of Zhipu, formerly Knowledge Atlas Technology JSC Ltd., have surged by 170% since March in Hong Kong. Meanwhile, MiniMax Group Inc.’s stock has fallen around 50%, highlighting a dramatic divergence between the two AI heavyweights. Analysts suggest that this trend is set to gain momentum in early July as significant IPO lockup shares for MiniMax are scheduled to hit the market.

The Bifurcated Race in China AI​

The growing investor preference for Zhipu indicates that users and institutional investors are strongly rewarding model quality, moving beyond initial enthusiasm based on cost-efficiency. Both companies debuted in January and benefited from Beijing’s national push toward technological self-reliance, despite neither firm yet reporting profits.

Zhipu currently stands as a faraday leader among the top three performers on the Hang Seng Tech Index, having seen gains exceeding 1,500%. This extreme outperformance sets the stage for concentrated betting bets in the market.

Model Quality vs Pricing Strategy​

The performance gap is primarily attributed to differing strategies regarding model development and pricing. Zhipu has successfully maintained its sales volume while simultaneously raising prices for its GLM models this year. In contrast, MiniMax drastically slashed the charge for its newest flagship M3 by 50% just a week after its launch, an effort aimed at customer retention.

Market reaction to these moves has been sharp. Goldman Sachs Group Inc. reduced its price target on MiniMax by 14%, citing the negative margin impact caused by the aggressive price cut. JPMorgan Chase & Co. analyst Olivia Xu raised her price target for Zhipu while simultaneously downgrading MiniMax, labeling the lower pricing as a "signal of lower-than-expected model capability."

Lockup Expiry Puts Pressure on MiniMax​

Near-term volatility looms as cornerstone investors in both IPOs face share lockups expiring. According to estimates from HSBC Holdings Plc, 65% of MiniMax’s total shares will be released into the market on July 8th. This release is set against a much smaller tranche for Zhipu, where only 6% of its shares are scheduled for trading a day earlier.

The significant volume expected from MiniMax's lockup expiry could make their stock easier and cheaper to borrow, thereby amplifying pressure on the company’s valuation. Felix Wang of Hedgeye Risk Management acknowledges that shorting MiniMax is popular but maintains that both companies face similar long-term hurdles.

Geopolitics Boost Zhipu as AI Landscape Shifts​

The global investment focus on Chinese AI has intensified following reports of the US government blocking foreign nationals from accessing Anthropic PBC’s top products. Zhipu capitalized on this geopolitical event by unveiling its most advanced open-source model, a move that drove its shares up more than 70% in recent trading.

Gavekal Capital Ltd.’s Leonid Mironov suggests that "Zhipu are much better at convincing the market that their customers are stickier." He added that if MiniMax cannot retain users even while competitors face external restrictions, it presents a serious concern.

BofA Securities has initiated coverage on both companies with a buy rating, expecting MiniMax to regain ground after navigating the overhang generated by the lockup expiry.