Investment Value in China’s Artificial Intelligence Industry

Abstract

At present, various AI products are increasingly connected with people, playing a crucial role in their lives. It can be seen from the report on China's artificial intelligence industry that the market size of China's AI market is growing rapidly with great development potential. Moreover, investing in China’s AI market is also the top choice for numerous investors. Hence, this paper focuses on studying the development trend and potential problems of companies in China's AI market, and eliciting relevant investment suggestions, through analyzing three representative China firms- iFLYTEK, Baidu, and HUNDSUN. To analyze, this research uses the CAPM model and the calculation formula of WACC to calculate the WACC, and evaluate their profitability by calculating their gross profit margin and net income margin respectively. From the results, it can be seen there exists profitability issue of iFLYTEK and Baidu, due to the main factor that they are trying to develop in new fields resulting in high R&D expenses and selling expenses generated without a significant result in their revenue. The profitability of HUNDSUN seems optimistic, yet its R&D expenses and COGS are also increasing significantly in 2021, which are used to maintain the market share of core businesses, develop new businesses and upgrade core technologies. For those companies, they diversify their business structure for further growth opportunities due to their core business markets are close to saturation; however, this will also increase their business risk. Currently, in conclusion, the great development chances of China’s AI market coexist with risks.