ARTIFICIAL INTELLIGENCE · FINANCIAL MARKETS
Chinese artificial intelligence supply-chain companies are expected to continue attracting investors to Hong Kong's stock market despite a recent pullback in valuations and growing scrutiny of AI-related investments. Citigroup's head of China investment banking says domestic and international demand is supporting upcoming listings, although a broader downturn in the AI market could still affect investor confidence.
China's artificial intelligence industry is facing a new test in financial markets. After a strong wave of investor interest in AI infrastructure and semiconductor-related businesses, valuations have begun attracting closer scrutiny. Yet companies supplying the technology behind AI systems are still expected to find support when they seek to raise money through initial public offerings.
According to a Reuters report published on October 17, 2026, Simon Yuan, Citigroup's head of China investment banking, expects Chinese AI supply-chain companies planning to list in Hong Kong to remain relatively resilient despite recent market volatility.
The outlook comes as investors reassess how much they should pay for companies linked to the rapid expansion of AI computing, data centres and semiconductor infrastructure.
The key question is whether the underlying demand for AI technology can sustain company growth and investor interest even as the market becomes less willing to accept high valuations without evidence of strong financial performance.
Why China's AI Supply Chain Matters
Artificial intelligence depends on a complex network of businesses that provide the hardware, components and infrastructure needed to develop and operate AI models.
This supply chain includes semiconductor manufacturers, chip-design companies, optical networking suppliers, server manufacturers, cooling-system providers and data-centre operators. Their products help move information, process calculations and supply the computing power required by modern AI systems.
As AI companies build larger models and deploy them to more users, demand for computing infrastructure has increased. Businesses supplying essential components can benefit from higher sales volumes and, where market conditions allow, improved selling prices.
Chinese companies are participating in several parts of this industry. Some manufacture components for data centres and communication networks, while others develop chips, electronic equipment and supporting technologies.
These businesses have attracted attention because they can benefit from investment in AI infrastructure without necessarily having to develop a leading consumer-facing AI assistant themselves.
However, being part of the AI supply chain does not guarantee success. Companies still face competition, technology changes, customer concentration risks, export restrictions and the possibility that demand or selling prices will weaken.
Citi Sees Continued Support for Hong Kong IPOs
Yuan told Reuters that Chinese AI supply-chain listings should remain supported by a combination of domestic Chinese and international investor demand.
One important source of funding is mainland Chinese capital flowing into Hong Kong-listed shares through investment channels commonly described as southbound flows. This pool of liquidity can help support demand for companies seeking to raise capital in the city.
Hong Kong is an important fundraising centre for Chinese businesses because it provides access to international investors and a major public equity market outside mainland China's domestic exchanges.
For AI-related companies, a Hong Kong listing can provide capital to expand production, invest in research, strengthen balance sheets and pursue international business opportunities.
Nevertheless, the presence of buyers does not eliminate valuation risk. Investors may remain interested in a company's technology while demanding a lower share price or more convincing evidence that its business can generate sustainable profits.
That distinction is becoming increasingly important as the AI investment cycle matures.
Hong Kong's IPO Market Has Raised Billions
Hong Kong's public offering market has experienced a significant increase in fundraising activity during 2026.
Reuters reported that 118 companies went public in Hong Kong during the first nine months of the year, raising a combined HK$388 billion, equivalent to approximately $49.4 billion. The amount raised was 106% higher than in the same period of 2025.
The figures demonstrate the scale of capital-raising activity in the market and the importance of Hong Kong as a destination for companies seeking public investment.
AI-related businesses form part of a wider market that includes companies from several industries. The overall fundraising figures should therefore not be interpreted as money raised exclusively by AI companies.
For Chinese technology businesses, however, the market provides a potential route to finance expansion at a time when competition for computing infrastructure, engineering talent and global customers remains intense.
The challenge for issuers is to convince investors that the money raised will support profitable growth rather than simply fund expansion in an increasingly competitive industry.
Why AI Valuations Are Coming Under Pressure
AI-related shares have benefited from expectations that demand for computing power will continue growing. But rising share prices can create a gap between what investors pay for a company and the profits it currently generates.
That gap becomes more difficult to justify when borrowing costs rise, market volatility increases or investors become uncertain about how quickly AI infrastructure investments will generate returns.
Recent pressure on AI-related shares and data-centre businesses has encouraged investors to examine valuations more carefully. Companies with large capital requirements may be particularly vulnerable if financing becomes more expensive or projects take longer than expected to produce revenue.
The underlying demand for AI infrastructure may remain substantial, but investors are increasingly distinguishing between companies with established customers and strong financial performance and businesses whose future growth depends heavily on optimistic assumptions.
For Chinese AI supply-chain firms preparing to list, that shift could affect how much capital they can raise and the valuation investors are willing to accept.
Yuan also warned that a broader reversal in the US AI market could affect markets elsewhere, including Hong Kong. Because AI infrastructure companies operate within a globally connected industry, weakness in one major market can influence sentiment across the sector.
Chinese Hardware Companies Expand Overseas
Another factor supporting some Chinese AI supply-chain businesses is their growing international manufacturing presence.
Yuan told Reuters that many Chinese hardware companies had proactively established manufacturing operations outside mainland China. Such arrangements can help suppliers serve overseas customers and reduce certain operational or geopolitical risks.
International manufacturing can be valuable for companies serving customers that want diversified production networks. It may also help businesses navigate some trade barriers and supply-chain concerns, although overseas facilities do not remove every regulatory or geopolitical risk.
Companies must still manage local regulations, labour costs, logistics, intellectual-property protections and relationships with international customers.
For investors, the ability to serve customers across different markets can be an important part of evaluating whether an AI hardware company has a sustainable business model.
However, overseas expansion requires capital. Investors must consider whether the additional revenue and market access justify the cost of building and operating facilities in other countries.
The Next IPO Wave Could Focus on AI Models
While hardware suppliers have attracted significant attention, the focus of Hong Kong's technology listings could begin shifting towards AI model developers and application companies in 2027.
According to Yuan, investors are expected to look more closely at Chinese businesses developing artificial intelligence models and applications.
These companies occupy a different part of the AI industry from chip and hardware suppliers. They build the software systems that users interact with, including assistants, enterprise tools and specialised applications.
The commercial opportunity is substantial, but developing a capable model does not automatically create a profitable business. AI developers must pay for computing resources, attract customers, compete with established platforms and find ways to generate recurring revenue.
Companies seeking to list will need to demonstrate that their technology can translate into strong growth and sustainable profitability.
This requirement could create a more demanding environment for AI businesses whose valuations have been based primarily on future potential rather than established financial results.
What Investors Will Examine Before Buying
For investors considering Chinese AI-related IPOs, the central issue is no longer simply whether artificial intelligence will expand. It is whether an individual company can capture enough of that growth to justify its valuation.
Several factors deserve attention:
- Revenue growth: Whether the company is generating increasing sales from real customers rather than relying primarily on future demand forecasts.
- Profitability: Whether the business can earn sustainable profits after accounting for research, manufacturing and operating expenses.
- Customer concentration: Whether revenue depends heavily on a small number of large customers.
- Technology competitiveness: Whether the company's products remain relevant as AI hardware and software develop.
- Capital requirements: How much additional money the business needs to expand and maintain its competitive position.
- Geopolitical exposure: Whether export controls, trade restrictions or supply-chain disruptions could affect operations.
- IPO valuation: Whether the proposed share price is reasonable relative to the company's financial performance and risks.
A company may operate in a rapidly growing industry and still deliver disappointing returns to investors if its initial valuation is too high or its profits fail to meet expectations.
That is why stronger scrutiny of AI valuations does not necessarily mean investors have abandoned the sector. It can instead mean they are becoming more selective about which businesses deserve their capital.
Could a US AI Market Downturn Affect China?
China's AI supply chain is connected to a global market in which American technology companies, semiconductor suppliers, cloud providers and data-centre operators play major roles.
If US investors sharply reduce their exposure to AI-related companies, the effect could extend beyond the United States. Lower valuations and weaker investor confidence can influence fundraising plans in other markets, including Hong Kong.
At the same time, Chinese companies have their own sources of demand and funding. Domestic investment, local customers and government-backed technology priorities may provide support even when international sentiment weakens.
These factors can help explain why some Chinese IPOs may remain resilient during a period of valuation pressure. They do not, however, make the companies immune to a global slowdown.
If demand for AI infrastructure weakens, customers reduce spending or financing becomes more expensive, hardware suppliers and AI developers could face pressure regardless of where their shares are listed.
The future performance of the sector will depend on both the continued development of AI technology and the ability of businesses to turn that development into sustainable economic activity.
Key Facts
- Market: Hong Kong's equity capital market.
- Industry: Chinese AI supply-chain companies, including hardware and infrastructure suppliers.
- Citigroup's view: Upcoming listings are expected to remain supported despite valuation concerns.
- Fundraising: 118 Hong Kong IPOs raised HK$388 billion in the first nine months of 2026, according to Reuters.
- Investor support: Demand from mainland Chinese and international investors.
- Main risk: A broader downturn in the global AI investment cycle could affect valuations and listings.
- Expected shift: More attention on Chinese AI model developers and application companies in 2027.
China's AI supply-chain IPO market is showing signs of resilience despite a pullback in valuations. Citigroup expects upcoming Hong Kong listings to benefit from domestic liquidity and continued international interest, while acknowledging that a broader AI market downturn could affect the sector.
The next stage of the market may be more demanding for companies seeking public investment. As scrutiny increases, investors are likely to focus more closely on revenue quality, profitability, competitive advantages and the ability to turn AI demand into lasting financial returns.
