China AI Stocks Zhipu & MiniMax Face Record Short Bets

Chinese AI model developers Z.AI Co. (Zhipu) and MiniMax Group Inc. are facing record short bets ahead of their earnings reports, signaling escalating investor concern over intense competition within China’s artificial intelligence sector. Short interest against MiniMax has climbed to represent 20% of its free float, with Zhipu seeing 6% of its free float targeted, as per S&P Global data.

Initial Enthusiasm Wanes for AI Pure-Plays

These significant short positions emerge despite both Hong Kong-listed stocks initially experiencing blockbuster listings earlier this year. However, investor enthusiasm has since waned, with both companies’ valuations more than halving from their peak values.

Zhipu and MiniMax initially attracted considerable interest as the only listed pure-play AI model developers globally, leveraging China’s reputation for cost-effective, high-quality AI solutions.

Intensifying Competitive Landscape

The market has become increasingly crowded with major players like Alibaba Group Holding Ltd., DeepSeek, and Moonshot AI Inc. intensifying competition. This pressure is particularly evident in pricing and technology. David Choa, head of Greater China equities at BNP Paribas Asset Management, noted that the proliferation of lower-cost, open-source models from China is democratizing AI capabilities, challenging the perceived scarcity value of individual models.

Choa also suggested that identifying long-term winners remains premature given the rapid pace of model development and evolving business models.

Key Drivers of Bearish Sentiment

• MiniMax implemented price reductions for its M3 model in June.
• Moonshot’s advanced Kimi K3, released last month, poses a significant competitive threat to Zhipu’s GLM model.

Even Zhipu’s subsequent launch of GLM-5.3, which Jefferies Financial Group analysts claim offers comparable performance to Kimi K3 at a 19% lower cost, has not boosted its stock performance.

Mainland Investor Support Amidst Headwinds

Despite the bearish sentiment from international investors, mainland investors have shown support.

• Their stake in Zhipu rose to 12% within three months of its Stock Connect inclusion.
• MiniMax saw its holding by mainland investors quickly reach 8.1% within two weeks.

DeepSeek’s surprising price hike earlier in the month adds another layer of complexity, with its long-term impact on industry profitability yet uncertain. Felix Wang, tech sector head at Hedgeye Risk Management, highlighted investor concerns over the price war impacting Zhipu’s ability to raise prices and maintain profit margins. Wang also characterized MiniMax’s products as being “stuck in the middle,” neither the most intelligent nor the cheapest.

Upcoming Earnings to Offer Clarity

Upcoming earnings reports are anticipated to provide crucial insights into how these companies are navigating the current competitive landscape.

• MiniMax’s earnings report is due later Wednesday.
• Zhipu’s earnings report is scheduled for next Monday.
• Bloomberg data projects Zhipu’s first-half revenue to increase by approximately 153% sequentially.
• Zhipu’s adjusted net loss is expected to widen during this period.