OpenAI and Anthropic, two of the most hyped companies in the world, are preparing to go public within the next 18 months. Investors may soon have a chance to buy shares in these artificial intelligence pioneers, which are expected to command eye-watering valuations. The pitch from these companies is straightforward: they are building the most transformative technology of the century, and early investors could reap huge rewards.
But there is a complication that investors should not overlook. In China, a growing number of AI startups are developing powerful models of their own—and they are doing it at a fraction of the cost. Companies like DeepSeek, Zhipu, MiniMax, and Moonshot are releasing many of their models as open-weight systems, meaning anyone can download and use them. They are also pricing their services far below Western rivals, threatening to disrupt the business models of OpenAI and Anthropic.
The Chinese AI Challenge
Chinese AI firms have been quietly building advanced language models that rival those from US companies. DeepSeek, for example, has released models that perform competitively on benchmarks while being significantly cheaper to run. Zhipu, backed by tech giant Alibaba, has also gained traction with its GLM series. These companies are not just copying Western technology; they are innovating and often releasing their work openly, which allows developers worldwide to build on it.
The open-weight approach is a key differentiator. While OpenAI and Anthropic keep their most advanced models proprietary and charge for access, Chinese rivals are giving away similar capabilities for free or at low cost. This could erode the competitive advantage that Western AI companies rely on to justify their high valuations. If businesses and developers can get comparable AI performance from open-source models, they may be less willing to pay premium prices to OpenAI or Anthropic.
What This Means for Investors
For everyday investors, the rise of Chinese AI competition introduces a new layer of risk to the already speculative IPOs of OpenAI and Anthropic. When these companies eventually list, their valuations will depend on their ability to maintain pricing power and market share. If Chinese rivals continue to improve and undercut them, profit margins could shrink, and growth expectations might need to be revised downward.
It is worth noting that the AI market is still in its early stages, and there is room for multiple winners. But the presence of well-funded, innovative competitors in China means that OpenAI and Anthropic will not have an easy path. Investors should also consider the broader geopolitical context: trade tensions and export controls on advanced chips could affect both sides. For instance, US restrictions on selling high-end semiconductors to China may slow Chinese AI development, but they could also spur Chinese companies to become more self-reliant.
In the meantime, the broader stock market has been resilient, with RBC Capital Markets raising its S&P 500 target to 8,150 on a resilient economy. However, tech investors should keep an eye on how the AI landscape evolves, as it could have ripple effects across the sector.
What to Watch Next
Investors should monitor several key developments. First, the pace at which Chinese AI companies release new models and gain adoption will be critical. If they start winning major customers or partnerships, it could signal a shift in the competitive balance. Second, watch for any delays or valuation adjustments in the OpenAI and Anthropic IPOs. There have already been reports of OpenAI facing potential delays as advisors push for a lower valuation or a later timeline. Third, keep an eye on regulatory moves, both in the US and China, that could affect AI development and cross-border competition.
Ultimately, the AI race is far from over, and the emergence of strong Chinese contenders adds a new dimension. For investors, the key takeaway is that the path to profitability for Western AI leaders may be more challenging than their hype suggests. As always, it pays to look beyond the headlines and understand the competitive dynamics before committing capital.
