What are the factors that will affect AI companies' market valuation in China?

Abstract

Artificial Intelligence (AI), as the next generation of technology to promote productivity change, is not only a product of the laboratory but is also being commercialized and applied all over the world. As one of the fastest-growing major economies, China is rapidly developing in the AI industry and technology, where a large number of companies promote the development of the industry from upstream algorithms to downstream products and are widely involved in the formulation of standards related to AI. These companies have also become popular investment targets for investors. Despite the growing knowledge regarding the investment value of Chinese AI companies, limited research in English demonstrates how to invest in this promising industry. Based on an extant literature review on AI technology and factor analysis, this author used principal component analysis to reduce the dimensionality of the 14 selected indicators, constructed a model to screen the potential AI companies to invest from the AI sector on the Chinese stock market. This author then conducted a panel data regression analysis to study the impact of 4 factors on the valuation of 10 AI companies selected by the PCA model. This work found that institutional ownership and the number of patents released have a significant and positive impact on the valuation of AI companies, while gross profit margin and R&D investment have no significant impact.