xAI Teams Up with Nvidia in $20B Funding Round & Chinese Tech Stocks Hit Decade Highs

Summary

Prof G Markets – xAI Teams Up with Nvidia in $20B Funding Round & Chinese Tech Stocks Hit Decade Highs

Date: October 9, 2025
Hosts: Ed Elson (for this episode)
Guests: Ed Ludlow (Bloomberg Technology), Alice Han (China Decode podcast, Greenmantle economist)

Overview

This episode of Prof G Markets dives into two major stories rippling through global markets:

1. xAI’s $20B funding round, featuring an intricate and ‘circular’ financing partnership with Nvidia
2. The surge in Chinese tech stocks, with the CSI 300 hitting multi-year highs on robust AI, biotech, and state policy themes

The hosts break down the mechanics and implications of these financial maneuvers, discuss potential bubble risks, and analyze the drivers behind China's stock market rally.

---

Segment 1: xAI & Nvidia’s $20B Circular Funding Deal

Guest: Ed Ludlow, Bloomberg Technology
Start Timestamp: 01:33

Key Discussion Points

• Deal Structure & Mechanics

  • Nvidia to invest up to $2B in xAI as part of a broader $20B round ($7.5B equity, $12.5B debt)
  • The money largely flows back to Nvidia via chip/GPU sales—a structure echoed across major AI/semiconductor financings
  • The deal leverages a Special Purpose Vehicle (SPV): SPV raises both debt and equity, buys GPUs, then leases them to xAI on a 5-year term—protecting xAI from heavy upfront capex and asset depreciation

• Innovation in Financial Engineering

  • Rather than buying infrastructure, AI companies increasingly prefer renting/leasing, avoiding depreciating assets and balance sheet risk
  • Nvidia keeps technology cycles brisk ("updating technology on an annual cadence" [04:59]) making outright purchases risky for fast-evolving companies

• Unanswered Questions & Risks

  • Ambiguity remains about "who ends up with equity" and "who is ultimately liable" for assets as they age ([06:27])
  • Debt investors get steady rent/lease payments, but risk is unclear if asset values dive by term end

• 'Circular' Financing & Bubble Fears

  • This structure is becoming common in AI: Big Tech funds startups, which spend that money on Big Tech's hardware
  • "Are you concerned... these circular transactions... might be creating a bubble in AI?" ([07:25])

Notable Quotes

• Ed Ludlow on SPV Innovation:

  "It’s not as simple as a group of investors making an equity investment directly into xAI. Basically... the pool of investors with xAI have set up a special purpose vehicle... The SPV... raises capital... to buy GPUs upfront. xAI rents or leases the capacity... over a five-year term." ([03:33])

• On Depreciating Assets:

  "These GPUs might be the cutting edge right now, but in five years time they will be obsolete... The benefit to xAI... is that it’s kind of protected against that." ([04:59])

• Circularity Defense - via Nvidia:

  "Jensen Huang gave some interviews... he said Nvidia has no requirement that OpenAI use that financial backing specifically to buy Nvidia chips... they are free to go and buy AMD chips using the backing Nvidia has given them." ([08:09])

• Ed Ludlow on Industry Dynamics:

  "There are few players, but the net is a little wider than perhaps simply saying this is Nvidia and OpenAI going back and forth." ([10:34])

Analysis & Bubble Talk

• Media and analysts are increasingly spotlighting the potential for an "AI bubble," with headlines citing “circular deals” ([11:25])

• Despite near-universal recognition of bubble dynamics, the market continues to pour money in—driven by FOMO:

  "The fear of not being part of perhaps the greatest technological revolution of the century... is overriding almost everything." – Ed Elson ([13:24])

• Mark Zuckerberg’s rationalization:

  "He said an AI bubble is, quote, quite possible. But he also said... he would rather, quote, misspend a couple of hundred billion than miss the chance at superintelligence." ([13:46])

Memorable Pop Culture Reference

• Margin Call (Wall Street film) cited to illustrate repeated market bubbles and our inability to resist them:

  "We cannot help ourselves. Cannot help ourselves, he says. We can’t control it, we can’t stop it, we can’t even slow it. All we can do is react to it." ([15:14])

---

Segment 2: Chinese Tech Stocks Surge on Policy & Innovation

Guest: Alice Han, China Decode & Greenmantle
Start Timestamp: 18:52

Key Discussion Points

• China’s Market Rally & AI’s Role

  • CSI 300 up 21% YTD; 3.5+ year high, tech index at peak since 2015 ([18:52])
  • Rally driven by: Beijing pivot to pro-private/tech policy; attractive valuations; investor rotation; and anticipation of China’s next Five-Year Plan

• Five-Year Plan as Catalyst

  • New economic plan expected to prioritize "high quality, tech-driven growth" in sectors like AI, semiconductors, biotech, aviation, maritime
  • Five-Year Plans lay out government priorities, directing investment, resources, and policy support ([22:02])

• Beyond AI: Broader Tech and Sectoral Growth

  • AI is only part of the story; biotech and pharma have outperformed even leading AI/consumer platforms
  • Push for domestic, onshored supply chains in EVs, batteries (BYD, CATL), green energy, robotics, semiconductors
  • China’s scaling and export power lead to both global price drops and enormous tech export surpluses ([23:46])

• Valuations and Reversion

  • PE ratio for Chinese tech (∼11) remains much lower than US peers (S&P ∼27–28)
  • Expectation of mean reversion as US AI bubble talk grows and investors seek alternatives ([26:14])

Notable Quotes

• Alice Han on the Policy Shift:

  "We've seen a pivot by Beijing towards being more supportive of the private sector, of tech companies... I think investors both in the mainland and are looking more keenly towards Chinese equities." ([20:06])

• On the Five-Year Plan:

  "In the next five year plan we're going to hear a lot of talk about what Xi Jinping Coined in 2023, the new quality productive... high quality tech driven growth that rests on innovation, especially in some of these core emerging technologies..." ([22:02])

• Tech Growth is Broad-Based:

  "It's not just an AI driven story... biotech or pharmaceutical companies... their year to date Performance is actually outpaced even these big consumer AI tech platforms." ([23:46])

• Valuation Opportunity:

  "If you look at made in China 2025, if you focus just on every single sector they targeted, you would have made a lot of money... industrial policies are extremely important because it helps investors figure out what exactly is Beijing going to concentrate on and apply a lot of resources and support." ([26:14])

• On Sector Watchlist:

  • "In robotics, I think Unitree is a supreme leader... they're announcing pretty affordable humanoid robots in 2026. In semiconductors, SMIC... and Huawei will be the front runners. Then there are interesting equipment providers and chip designers like NARA and Biran." ([27:54])

---

Timestamps for Key Segments

• 01:33 – Markets overview, introduction to the xAI/Nvidia circular deal
• 03:33 – Ed Ludlow explains the SPV structure
• 04:59 – Asset depreciation, benefits for xAI
• 06:27 – Debt/equity implications, investor liabilities
• 07:25 – Concerns about circular financing and AI bubble
• 08:09 – Nvidia’s stance on how its backing can be used
• 10:34 – How "circular" are these deals in practice?
• 11:25 – Media/analyst bubble warnings & FOMO in AI investment
• 13:46 – Zuckerberg’s quote on AI bubble risk
• 15:14 – Margin Call movie analogy for inevitable bubbles
• 18:52 – China segment begins; CSI 300 rally context
• 20:06 – Policy and investment landscape shifts (Alice Han)
• 22:02 – Five-Year Plan explained
• 23:46 – AI vs. broader sectoral growth in China
• 26:14 – Valuation disparity and mean reversion prospects
• 27:54 – Sectors and companies to watch

---

Tone and Atmosphere

• No-nonsense, skeptical yet energetic: The commentary is sharp, data-driven, and unafraid to question market euphoria.
• Quotable, wry, and sprinkled with pop culture: Margin Call is invoked, and anecdotes from both tech and Wall Street lore bring color.
• Expert, accessible, and perceptive: Complex financial structures and geopolitical trends are explained without jargon.

---

For Listeners Who Missed the Episode

• The episode breaks down the circular, complex, and sometimes risky world of AI financing, spotlighting recent deals where the lines between investor and vendor are increasingly blurred.
• On the global stage, the rush into AI and tech has clear bubble-like qualities—yet both investors and founders are gripped by FOMO and the prospect of unprecedented technological gains.
• In China, AI is just one pillar in a much broader surge of government-backed innovation, with policy tailwinds and global rebalancing driving renewed interest among both local and global investors.
• Both segments underscore a market at fever pitch—possibly unsustainable, but also rife with transformative opportunity.

---

End of Summary

Transcript

[A]

Support for the show comes from Anthropic, the team behind Claude. When you're analyzing market trends or trying to understand what's really driving economic shifts, you need more than surface level takes. Meet Claude, the AI thinking partner that works through complexity with you. Whether you're dissecting earnings reports or exploring the ripple effect of policy changes, Claude helps you dig deeper into the analysis that matters. Try Cloud for free at Claude AI ProPGMarkets and see why the world's best, best problem solvers choose Claude as their thinking partner.

[B]

Avoiding your unfinished home projects because you're not sure where to start. Thumbtack knows homes, so you don't have to don't know the difference between matte, paint, finish and satin or what that clunking sound from your dryer is. With Thumbtack, you don't have to be a home pro, you just have to hire one. You can hire top rated pros, see price estimates and read reviews all on.

[C]

The app download Today, AI agents are getting pretty impressive. You might not even realize you're listening to one right now. We work 247 to resolve customer inquiries. No hold music, no canned answers. No frustration. Visit Sierra AI to learn more.

[D]

Today's number 2 billion that's how many dollars people spend in Turkey on hair transplants every year. That's right. One of Turkey's fastest growing exports is indeed hair transplants. Or as the Turkish like to call it, hope.

[A]

Money markets matter.

[D]

If money is evil, then that building is hell. Welcome to Profit you markets. I'm Ed elson. It is October 9th. Let's check in on yesterday's market vitals. The S&P 500 and NASDAQ hit new intraday highs and closed in the green as investors bought Tuesday's dip. The Dow was flat, the dollar hit a two month high as economic concerns weighed down global currency peers and Gold continued its rally above $4,000 to yet another record high. Okay, what else is happening? Elon Musk's AI startup xai is teaming up with Nvidia in yet another circular deal. Nvidia will invest as much as $2 billion in XAI, which XAI will then use to buy Nvidia chips. This will be part of a larger funding round for the company. XAI will raise $7.5 billion in equity and $12.5 billion in debt. In total, the company will likely raise $20 billion. So another circular deal in AI. We've talked about this many times before where these big AI companies invest in these smaller AI companies who then use that investment, they turn around, they buy their chips, they buy their compute. We saw it with AMD and OpenAI this week. We've seen it with Nvidia and OpenAI, Amazon and Anthropic, et cetera, et cetera. Well now we are seeing it again with Nvidia and this time with xai. So more of the same. Here to help us break down this deal, we are speaking with Bloomberg's Ed Ludlow. He is the one who actually broke this story. Ed, thank you for joining us on Profgue Markets.

[E]

Yeah, thank you for having me.

[D]

So Nvidia is investing $2 billion in XAI, part of this $20 billion funding round. You broke the story on Bloomberg. Tell us, what do we know about this deal so far?

[E]

It's a complicated structure because it's not as simple as a group of investors making an equity investment directly into xai. What we've reported is that basically the pool of investors with XAI have set up a special purpose vehicle or an spv. Yeah, and the SPV lives as its own entity. It raises the capital both in the form of debt and cash or equity, and then uses that board capital to buy GPUs upfront. X AI doesn't buy the GPUs upfront. It rents or leases the capacity or the specific GPUs from the SPV, the group of investors over what we understand to be a five year term. So like the group of investors basically get regular payments, fees or rent. XAI doesn't have to take the capital burden, it gets access to the latest GPUs and it doesn't have to put any debt on its corporate balance sheet. So it's an unusual mechanism. I think we're still trying to report and find out the specifics of how all of these entities are bound together. But that's the logic behind it.

[D]

You mentioned that this could be a deal structure that we might start to see replicated in tech and in AI. This SPV structure, what are the benefits exactly for XAI and to what extent is this kind of financial engineering?

[E]

Well, as you probably discussed in the program, a lot of times when it comes to the building of a data center, there are different models at play. You know, if you are an OpenAI or an Anthropic or an XAI, you don't necessarily want to have ownership of that infrastructure. You just want to use it by the training or inference. And so the benefit to XAI in the deal that we've reported is it doesn't have to take on the capital Burden up front. But also companies like Nvidia, basically Nvidia leads this market, right? They can, they commit to updating their technology on an annual cadence. They have a new generation of GPU or accelerator every year. And so the problem with massive infrastructure at scale and how sources describe it to us is these GPUs might be the cutting edge right now, but in five years time they will be obsolete relative to the, to the latest generation then. And so they are basically a depreciating asset. The benefit to XAI in this structure is that it's kind of protected against that. It doesn't have to have cash upfront and over the course of that five years it isn't responsible nor liable. At least, you know, from a creditor's perspective to the value of those of those GPUs.

[D]

This might be a stupid question, but who is going to be liable then? I mean, who is on the hook for these GPUs?

[E]

This, yeah, I mean in, in our reporting this is probably the, the one main unanswered question is like at the end what happens, you know, for the investors particularly I suppose, in the debt portion of that structure, they get regular payments, right? And so one thing we do not know is under this SPV arrangement, who, if anyone, ends up with XAI X Equity, who ends up on the cap table. But the other way of looking at it is that they get a guaranteed return. XAI makes payments to them over time, be it monthly, quarterly and you know, literally a lease payment or a rent payment as we understand it. And so they will have that kind of visible income in five years time. What if they have to swap out those GPUs for a new cluster of the cutting edge generation? We just don't know, but we're certainly trying to find out.

[D]

This is becoming sort of a theme in AI where you have one, these extremely complex financial transactions between these hyperscalers and these AI startups. And two, this circular nature of these deals where you've got Nvidia investing in XAI and then part of that deal is that XAI is going to take that money and then use that money to go back and, and buy chips, presumably from Nvidia. This has been getting a lot of attention recently. We had it with AMD and OpenAI as another example. Are you concerned yourself as someone who reports on this stuff, are you concerned about these circular transactions and the prospect that they might be creating a bubble in AI?

[E]

Well, since we break the story about XAI and the SPV in particular, we actually know a lot more that we did, at least, you know, before that. And the reason I say that is that Jensen Huang has given some, some broadcast interviews following publication of the story where he was asked about it explicitly. And so we know that Nvidia is participating. Jensen didn't say out loud the dollar figure. He said that he regretted he wasn't able to put more into this X AI financing. But what he went on to say is in the case of OpenAI, for example, which is a $100 billion commitment over a longer period of time, Nvidia has no requirement that OpenAI use that financial backing specifically to buy Nvidia chips. The example that he gave was that they are free to go and buy AMD chips using the backing that Nvidia has given them. The reason I use backing, by the way, instead of the word cash or money is we still don't have a good sense of whether that 100 billion is literally cash or is it chips in lieu of cash or is it equity? At least with the AMD Open AI deal, we understand better that AMD issues a warrant for their Stock to open AI only once OpenAI has funded its own build out of capacity. So to go back to the root of the original question, the leaders in this industry would push back and say it's not circular because there's no mandatory requirement that you actually use the cash or money that's coming from those chip names to buy their gear. You can go shopping in the market for any chips you want.

[D]

It's very interesting to hear that my response to them, if I could respond to them, would be sure it's not mandatory. It's not a mandatory circulated transaction. It's a voluntary, circular transaction. The prospect and the idea that OpenAI isn't going to spend that money on world class chips from Nvidia, the idea that they're not going to spend money on Blackwell, that to me seems absurd. I mean, sure, maybe they'll spend some of that money on AMD chips, but I feel quite confident that it's going to go back to Nvidia in some capacity. I'm wondering if you feel the same way.

[E]

Yeah. Bloomberg published a very detailed piece about circular financing this week and there's a beautiful illustration or chart within that story that shows the flows, not just of capital, but it shows the flows of software cooperation between the different names and hardware. So if you say that this is more than just about investment and money, it's about in which direction do semiconductors flow and in which direction does the Software. This is built on that compute flow. Yes, there are few players, but the net is a little wider than perhaps simply saying this is Nvidia and OpenAI going back and forth with one another.

[D]

Ed Ludlow, thank you very much for joining us. We really appreciate your time.

[E]

Thank you. It's great to be on.

[D]

That was Ed Ludlow, co anchor of Bloomberg Technology. So Ed Xai is joining the party, joining the circular deal party. We've been talking about this for a while now, but now that we've seen so many in such a short amount of time, it appears that everyone is now catching on. The media, analysts, investors, everyone is waking up to these circular arrangements and everyone is realizing that we could be creating a bubble in real time. Some of the headlines we saw this week, NBC News quote, Big AI's reliance on circular deals is raising fears of a bubble. From Bloomberg quote, OpenAI, Nvidia fuel trillion dollar AI market with web of circular deals from Semaphore. Circular investment deals by major AI companies spark bubble fears. So everyone knows what is happening at this point. And yet despite, despite the fact that we all know it, no one is slowing down. In fact, we are seeing more circular deals, more AI investment. Jensen Huang, Elon Musk, Sam Altman, all of these tech leaders are apparently pretty unfazed by what we are all describing. And by the way, so are investors. I mean, the markets keep climbing. The S and P and the NASDAQ both hit record highs. People continue to invest in AI. So the big question then, if everyone sees what's happening, if everyone recognizes the problem, they recognize these circular deals, they recognize how this could be creating a bubble. Well then why is everyone ignoring it? That is my question at least, and I don't have necessarily an answer. But I do have a feeling. And my feeling is that there is one thing that is driving this one thing only, and that is fomo, which is the fear of missing out. Whether you are Sam Altman or BlackRock or even a retail investor, what is happening here is the prize of winning AI. That prize appears to be so great that we have all decided it is worth it, no matter what. Yes, it might be a bubble, and yes, we might get burned pretty dramatically, but it's the fear of not being part of AI. It's the fear of not being part of perhaps the greatest technological revolution of the century. That fear is overriding almost everything. In fact, tech CEOs seem to acknowledge this. Zuckerberg himself, he said an AI bubble is, quote, quite possible. But he also said that he would rather, quote, misspend a couple of hundred billion than miss the chance at superintelligence. That is the philosophy of AI investment right now. The prize is too big. You have to get on the train, even if you're running the risk of flying off of the rails and bursting into flames. These AI leaders, they say, no, doesn't matter. We have to do it. You have to do it. Now where does that lead us? Where are we headed? Not exactly sure. But what I can say is that I am reminded of a scene from one of my favorite Wall street movies, and that movie is Margin Call, a great movie about the 2008 financial crisis. And what you have is this scene where Jeremy Irons is playing the head of a big Wall street bank and he's sitting at lunch and the crisis is unfolding and he's explaining why these bubbles happen. And he goes through every bubble and every crisis. He goes through 1901-1929-1937-1974, 1987. Jesus, didn't that fucker fuck me up good. 92, 97, 2000, and whatever we want to call this. It's all just the same thing over and over. We can't help ourselves. We cannot help ourselves. Cannot help ourselves, he says. We can't control it, we can't stop it, we can't even slow it. All we can do is react to it. After the break, what is driving China's stock market rally? If you're enjoying the show, give Profge Markets a follow.

[A]

Support for the show comes from Indeed. Your team is great and they can take on a lot. Anytime there's a new challenge and you ask who has the bandwidth, someone always steps up. But there comes a time when even the best teams can't take on any more work and you simply need to hire more people. Indeed can help. Indeed Sponsored Jobs helps you stand out and hire fast. With Sponsored Jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster and it makes a huge difference. According to Indeed data, Sponsored Jobs post directly on indeed have 45% more applications than non sponsored Jobs. That all means that there's no need to wait any longer. Speed up your hiring right now with Indeed and listeners of the show will get a $75 sponsored job credit. To get your jobs more visibility@ Indeed.com profg just go to Indeed.com Prof. G right now and support our show by saying you heard about Indeed on this podcast. Indeed.com propg terms and conditions apply. Hiring Indeed is all you need.

[E]

Support.

[A]

For the show comes from Groons. They used to say that an apple a day keeps the doctor away. Well, that's a nice thought, but even so, you still won't get all the nutrients you need that way. Here's a tip. Add Grunds to the mix. Grunds isn't a multivitamin, a green gummy or a prebiotic. It's all of those things and then some at a fraction of the price. And bonus, it tastes great. All Gruyn's daily gummy snack packs are packed with more than 20 vitamins and minerals made with more than 60 nutrient dense ingredients and whole foods. And for a limited time you can try their Gruni Smith apple flavor just in time for fall. It's got the same snackable, packable full body benefits you come to expect, but this time these taste like you're walking through an apple orchard and a cable knit sweater, warm apple cider in hands. I've tried Groons. I find it very convenient and in general just super easy to get. Kind of that health boost. If you will grab your limited edition Groony Smith Apple Grooms, available only through October. Stock up because they will sell out. Get up to 52% off when you go to Gruns Co and use the code Profg support for the show comes from Anthropic, the team behind Claude. When analyzing complex market movements or policy implications, the difference between surface level commentary and real insight comes down to asking better questions about the data. Claude is for AI, for minds that don't stop at good enough. It's a collaborator that actually understands your entire workflow and thinks with you, not for you. Whether you're strategizing your next business move or diving deep into economic analysis, Cloud extends your thinking to tackle the problems that matter. For finance professionals exploring earnings reports or economic policy ripple effects, Cloud works through complexity rather than rushing to conclusions. It helps spot connections across multiple sources, challenge assumptions and develop insights that go beyond the obvious. Try Cloud for free at Claude AI Propertymarkets and see why the world's best problem solvers choose Claude as their thinking partner.

[D]

We're back with property markets. China's stock market is on a tear. The CSI 300 that is essentially China's S and P that is up 21% this year and it is currently above a three and a half year high. The rally is fueled in part due to excitement over AI, with tech stocks pushing the CSI 300 tech index to its highest level since 2015. So a huge rally happening in China right now. For more on why this is happening. We are speaking with Proxy Media's very own Alice Han, host of the China Decode podcast and also a China economist at Greenmantle. Alice, great to have you on the program.

[F]

Thanks so much, Ed. Great to be first.

[D]

I gotta ask you, how's it going being part of the Proftree family?

[F]

Well, I'm learning a lot and I have to say that the team moves so quickly. I'm very impressed, very impressed by the caliber of the team. And I love the banter with James. He's the best partner ever.

[D]

Well, I've been loving listening to you guys. I think you guys are doing a great job. So we want to understand what's going on with this rally. We're climbing towards this four year high. This time last year the index was bottoming out. What's changed? What's causing this rally?

[F]

I think there are a number of things at play. Number one, we've seen a pivot by Beijing towards being more supportive of the private sector, of tech companies and certainly of the rebalancing of the economy. I think when you put together that mood music, that's largely a top down directed mood music. I think investors both in the mainland and are looking more keenly towards Chinese equities versus this time last year. Number two, when we think about the landscape of a weaker dollar of valuations being a bit too stretched with the max seven in the States, I think a lot of investors are looking elsewhere to diversify their portfolios. My own sense is that AI is going to be a two player game driven by China and the US. So if you look at the PE ratios of Chinese big AI companies, whether it's 10, Alibaba or even the semiconductor companies that support the AI infrastructure, these I think are priced pretty attractively, which is why we've seen a lot of movement and inflows from foreign investors back into the mainland. And the third part of it really is I think a big push which I suspect is top down as well as bottom up towards AI in every aspect of the economy, in technology and society. My own sense in the five year plan which we discussed this week that will be unveiled after October 23, that AI is going to be a cornerstone and a key part of the economic policy for at least the next five years. So I think when you put all that together, it's very clear to a lot of observers both domestically and in the foreign investment market that Chinese tech companies are way more attractive now than they were a couple of years ago and certainly priced very attractively.

[D]

Yeah, Tell us a little bit more about that five year plan. What is that five year plan? What are they trying to do with it?

[F]

So China followed the Soviet model starting in 57 with these five year plans that are targeted towards laying out China's economic, strategic, even military and society related goals. And certainly what we've seen in the last few five year plans is a pivot towards being a technology driven economy. My own suspicion is that in the next five year plan we're going to hear a lot of talk about what Xi Jinping Coined in 2023, the new quality productive. For this basically means high quality tech driven growth that rests on innovation, especially in some of these core emerging technologies, whether it's semiconductors, AI, biotech, even aviation and maritime equipment. I sense that this is going to be the key pillar of the next five years. And the way that the government approaches the five year plan is to basically lay out what they see as the 8, 10 even more strategic priorities for the government over the next five years to achieve in order to meet its internal KPIs.

[D]

So when we look at the rally that we've seen in the US, the story is basically just AI. I mean it's driven, I think between 70 to 80% of the gains in the S and P this year. To what extent is AI behind the rally in China? Is it the same story happening there that everyone's so excited about Tencent, everyone's so excited about Alibaba, perhaps everyone's so excited about Deep Seat, that's why sentiment is growing in China? Or are there other factors that are playing more of a force compared to the us?

[F]

Yeah, it's a great question, Ed. I think that AI is only part of the story. And again I walk back to what I previously stated, which is that in the last few five year plans, technology has become front and center as a main KPI for this government and for Xi Jinping. And the reason I say that is because when you look at the PE ratios of say BABA and Tencent, yes, they are higher than some of these other consumer platforms or even other companies. But it's not just an AI driven story. When you look at the health of these companies, or even the performance of these companies in the CSI 300 or even in the Hang Seng Index, what is clear to me is that yes, year to date performance in AI adjacent or AI directed companies like BABA and Tencent have been very strong. But at the same time what I've seen is that biotech for instance, or pharmaceutical companies, their year to date Performance is actually outpaced even these big consumer AI tech platforms. So I think it's a bit more than this. And when we peel back the layers, it's very evident to me that China is trying to basically domesticate and onshore as much of the technology stack and supply chain as possible. So when I look at say for instance BYD or even CATL, when I look at the EVs, the battery spaces, the biotech, the green energy spaces, we've seen very strong performance in those sectors independent of AI. And I think this is a story more broadly of again a top down but also a bottom up approach towards trying to indigenize technology as much as possible. And what happens when you put that in the biggest warehouse in the world, which is China? It is that you decrease prices but you also increase scale. And China, again reflected in the trade surplus globally, is basically creating a ton of technological goods that they are then exporting to the rest of the world. So I think it's more than an AI story, it is a really tech superpower story that again makes the most of China as a supply chain giant.

[D]

Just looking at multiples in the valuation, we were talking about the price to earnings ratio in China, which I think is around 11, you look at the S&P at around 27, 28. So still a huge disparity there. One of the themes we've been discussing is we think that there is probably going to be a little bit of a mean reversion and that is the gap will probably start to close a little bit. Just wondering if you feel the same way about that.

[F]

I definitely feel that there is going to be more of a narrowing of the gap and a mean reversion as you say. Ed, it makes sense given historically even I think these PE ratios are still considered low by Chinese standards. I also think that as people start to talk more about the AI bubble in the US and as there is more kind of hesitancy about being too exposed to US equities and US currency, there is going to be more rotation into China. We're also already seeing an EM rotation of say India, which was once the darling in the last few years, back to China. So I think it only makes sense that people are getting more constructive about Chinese equities. We're going to see a narrowing in the gap. I will also say that there is an opportunity to this five year plan. And again, this is why it's so important to think about what the government is going to prioritize as the strategic sectors. Because to my Mind if you look at made in China 2025, if you focus just on every single sector that they targeted, you would have made a lot of money. So again, this is why these five year plans, these industrial policies are extremely important because it helps investors figure out what exactly is Beijing going to concentrate on and apply a lot of resources and support.

[D]

Just final question here for people who are looking at the Chinese markets and figuring out a way to invest just to go through some of the big names that we should have on our radar. I mean the names that come to mind for me, as you said, Tencent, Alibaba, byd, Are there any other big names that everyone is super excited about in China? Any other big companies that we should be thinking about if we're investing in China?

[F]

So you've already named the big AI ones. Deepseek isn't publicly listed yet, but certainly has raised the tide for all of these AI adjacent and AI directed companies. I would also say on top of that, beyond the usual suspects everyone talks about BYD and catl, we're already starting to see, I think again mean reversion because profits are starting to slow in those green tech companies. And I think that will be a trend going forward. But I do suspect that there are going to be some exciting stories in robotics as well as in semiconductors and in the robotics field. I think Unitree is a supreme leader in this field. They're already announcing that they will roll out pretty affordable by global standards, humanoid robots in 2026. And then again in semiconductors, I would point to, you know, smic, which is China, a big fabrication firm for semiconductors. High end leading edge semiconductor technology still can't rival tsmc, but given that the government is trying to support indigenous supply as much as possible, I think they, along with Huawei will be the front runners. And then you've got some interesting equipment providers and chip design providers like NARA and Biran and the semiconductor space. So I think these are some of the other names that can be tossed around because again, to your previous question, Ed, it's not just an AI story, it's a sort of whole technology stack story.

[D]

All right, Alice Hahn, China economist at Greenmantle and host of China Decode, part of the Profge family. Always good to have you on. Thank you for joining.

[F]

Thanks so much, Ed.

[D]

All right, that was Alice Hahn. If you want to hear more from Alice on all things business, politics and culture in China, go listen to the China Decode podcast. It comes out every Tuesday on the Prof. G Pod, you can find it wherever you get your podcasts. That's it for today. This episode was produced by Claire Miller, edited by Joel Patterson, and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Our technical director is Drew Burrows. Thank you for listening to Profgue Markets. If you liked what you heard, give us a follow. I'm Ed Elson. Tune in tomorrow for our conversation with Katherine Ann Edwards.

[F]

The Pumpkin Spice latte is back at Starbucks. Crafted with our signature espresso and real pumpkin sauce, then topped with whipped cream, cinnamon and nutmeg. The psl get it while it's hot or iced only at Starbucks.

[C]

Mercury knows that to an entrepreneur, every financial move means more. An international wire means working with the best contractors on any continent, a credit card on day one means creating an ad campaign on day two, and a business loan means loading up on inventory for BL Black Friday. That's why Mercury offers banking that does more all in one place, so that doing just about anything with your money feels effortless. Visit mercury.com to learn more. Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group Column NA and Evolve bank and Trust Members FDIC.