China's artificial intelligence sector is expanding rapidly, but its commercial output remains a fraction of what US leaders achieve. According to Rhodium Group, all major Chinese AI models combined generate only about 10% of the annual recurring revenue (ARR) reported by OpenAI and Anthropic. This stark disparity is prompting investors to question whether the lofty valuations attached to Chinese AI startups are justified by their current financial performance.
Revenue gap widens
Rhodium's estimates, based on ARR—a metric that annualizes recent monthly revenue to capture growth—show DeepSeek at $500 million, MiniMax at $800 million, and Moonshot at $1 billion. Z.ai recently told investors its ARR reached $1.8 billion, according to a transcript seen by CNBC. Even including ByteDance's estimated $4 billion and Alibaba's $2.4 billion, China's top players remain far behind OpenAI's $40 billion and Anthropic's $65 billion.
Valuation concerns
The revenue gap becomes more pronounced when comparing valuations. Rhodium notes that valuation-to-revenue ratios for Moonshot and DeepSeek are "exorbitant," at 50 times and 163 times, respectively. In contrast, OpenAI trades at 34 times and Anthropic at 21 times. These multiples are particularly striking as several AI companies prepare for public listings—Anthropic is reportedly eyeing a US IPO next month, while OpenAI has delayed its plans to next year. Moonshot has filed confidentially for a Hong Kong listing, and DeepSeek is also reportedly preparing for an IPO.
Open-source models complicate monetization
A key difference between the Chinese and US AI markets is the business model. Chinese developers increasingly rely on open-source models, allowing third parties to download and run them independently. While this accelerates adoption, it also makes it harder for developers to capture revenue from every use. Rhodium says Chinese AI labs are exploring ways to take a larger share of revenue generated by third parties that provide access to their models. In contrast, OpenAI and Anthropic's models are predominantly closed, and their services command significantly higher prices per task, according to AI-comparison firm Artificial Analysis.
"The financing gap means it will be far more difficult for Chinese frontier AI labs to scale sustainably," said Logan Wright, partner at Rhodium Group. "They will be heavily dependent upon a favorable climate in the equity market—historically that’s not an easy bet in China. Government funding has been helpful on the hardware side of the buildout of compute capacity, but similarly will probably balk at direct funding for the frontier labs."
Investment and chip constraints
Rhodium estimates that more than 60% of equity investment in Chinese AI chips and servers comes from state-affiliated sources. The scale of China's AI buildout remains only around 15%-20% of US investment. However, China's AI capex is expected to double this year to 932 billion yuan ($139 billion) and top 1.2 trillion yuan ($193 billion) in 2027. Chip shortages have been a major constraint, with Tencent's capital expenditure trending lower in 2025 due to difficulties obtaining AI chips amid shifting US export controls.
That picture has begun to change in 2026. Domestic chip supplies from SMIC have increased, and access to Nvidia H200 chips appears to be easing. Chinese companies have also been able to access advanced chips through third countries. This improving supply environment is expected to support faster infrastructure investment, with Rhodium projecting China's AI infrastructure capex growth to accelerate in 2026 from 33% growth in 2025. Alibaba, Tencent, and Baidu together spent 208 billion yuan on capital expenditure in the first half of 2026, exceeding expectations. H200 shipments from August are expected to provide additional support in the second half of the year.
However, the outlook remains vulnerable to renewed US-China tensions, which could restrict access to advanced chips or close remote-access loopholes. Z.ai, meanwhile, has raised its own revenue expectations, now projecting ARR to reach $3 billion by year-end, up from its previous forecast of $2.4 billion.
This article is for informational purposes only and does not constitute financial advice.
