Chinese Hedge Funds Hold AI Bets Despite Rising Spending Risks

Investor letters from seven mainland hedge funds in August show most managers are keeping positions in AI-related stocks after a steep market reversal in July, while flagging risks tied to the scale of required investment and uncertain revenue timelines.

In a July letter, Shanghai Chaser described the July rout as “the bottom of the cycle for now.” Intewise’s chairman Liu Xiaolong said the correction was “probably having run its course” in separate investor notes. Other firms cautioned about how much capital the AI theme will consume and the difficulty of tracking where that capital is allocated.

Hunjin Capital estimated AI companies might need as much as $700 billion in annual recurring revenue next year to justify current spending levels, an increase of about $500 billion from present figures. Hunjin’s analysis included a projection that sustaining investment at that pace could displace roughly four million coding-related jobs.

Beijing Ren Bridge reviewed Nvidia’s outlook after the chipmaker reported strong guidance. The firm compared the hardware-driven demand to patterns seen around the Windows Vista upgrade, noting such cycles can later weigh on share prices. Shanghai Fusheng Assets Management called AI a “generational variable” but said the period of relatively easy gains appears to be ending, making stock selection a question of “who invests better.”

The letters provide specific performance data that links positioning to returns this year. Four of the seven funds had an AI investment bias going into the July sell-off and reported gains of at least 19% for the year through July 31. By contrast, three funds that largely avoided AI hardware-Ren Bridge, Ridou Investment Management and Qinchen Asset Management-were each down more than 8% over the same period.

The July correction was severe for some managers that had benefited most from the AI rally. Chaser’s globally allocated fund fell 34% in July and Intewise’s multi-strategy fund declined 29% in the same month, while the CSI 300 Index dropped about 8% in July. Despite those July losses, both Chaser and Intewise remained more than 30% higher for the year through the end of August. Hunjin’s Yueyang fund reduced AI exposure by roughly 40% before and during the sell-off, and still fell 12.6% in July; it recorded a small loss in August and remained up roughly 16% for the year.

The letters show managers focusing on a global technology theme rather than China-specific factors, even as US-China competition in AI continues. Several fund chiefs warned the current investment cycle could be strained if companies must sustain very large capital outlays or if revenue growth lags expectations. They also noted challenges in judging exactly where capital is being deployed, which complicates risk assessment for funds holding concentrated positions.

The documents name Shanghai Chaser, Intewise, Hunjin, Ren Bridge, Shanghai Fusheng, Ridou and Qinchen as the funds involved. Several of these firms each manage more than 10 billion yuan (about $1.5 billion), while Hunjin oversees more than 5 billion yuan, illustrating the size of AI-related bets within China’s hedge fund sector.