The fast and furious rally in China’s ChatGPT shares looks set to fade as tech firms caution they’re nowhere close to turning a profit in this field.

Beijing Deep Glint Technology stumbled as much as 10% on Monday after the company said it doesn’t have the capability to offer ChatGPT-linked products. That may be a foretaste of what’s to come even as firms such as Cambricon Technologies, CloudWalk Technology and 360 Security Technology jumped over 5% to extend their recent gains.

Caution towards AI-related shares is setting in after investors rushed in to capitalise on what’s being billed as a watershed development for the tech industry. Some market watchers are warning that the hype isn’t supported by fundamentals, drawing comparisons between the rally and the blockchain mania which fizzled out after a bout of heady gains.

“In most cases, it’s not immediately clear what the financial benefits are,” said Vey-Sern Ling, MD at Union Bancaire Privee. “Apart from the companies with the strongest technical capabilities, most of the rest are probably just riding the wave. Such hype-driven rallies are never sustainable.”

Beijing Deep Glint isn’t the only company that’s reining in expectations relating to ChatGPT. 360 Security said Friday there is “major uncertainty” on the release date and output of such services, three days after its shares posted the biggest daily surge since November 2020.

CloudWalk, a face recognition technology developer, clarified that it hasn’t generated any revenue from ChatGPT products and that it wasn’t involved in any collaboration with OpenAI.

“There looks to be a speculative element to the recent rally,” said Christina Woon, investment director for Asian equities at Abrdn. “It will be important to see how companies might be able to use this to enhance overall customer stickiness in their ecosystems or add value to their offerings, and ultimately how this can be monetised, whether directly or indirectly.”

Track record

China’s onshore equity investors, especially retail players, have a track record of jumping on the latest craze even before the companies roll out marketable products. Apart from the blockchain frenzy, traders also loaded up on shares linked to meat substitutes over three years ago despite the fact that the market barely existed in China.

Even warnings from regulators have failed to damp the ardour surrounding ChatGPT stocks. At least three companies were queried by local stock exchanges after their shares rose more than 30% over three straight sessions last week. A Chinese newspaper warned investors in a front-page commentary not to blindly join the speculative rally.

Read: Alphabet drops $100-billion after Google chatbot flubs answer in ad

Jefferies Financial Group says a slew of Chinese players will pursue ChatGPT-related technology, but the market may not have factored in potential hurdles as “info accuracy is a big challenge, pricing model uncertain and the cost of learning is high,” according to a note. — Charlotte Yang, (c) 2023 Bloomberg LP