Qiming’s Alex Zhou on staying half a step ahead of the AI market
Alex Zhou, managing partner at Qiming Venture Partners, shares his views on the AI market, emphasizing the importance of revenue and commercial deployment in sustaining valuations. He cautions against market enthusiasm and encourages investors to stick to their investment…
Intelligence analysis by Llama
Alex Zhou, managing partner at Qiming Venture Partners, advises investors to focus on revenue and commercial deployment when evaluating AI companies, rather than relying on market momentum or fear of missing out. He emphasizes the importance of sticking to investment discipline and building a circle of competence before investing in a sector.
Imagine you're at a big store with lots of cool gadgets. Some people are really excited about the new gadgets, but Alex Zhou says we should focus on how well the store is selling them, not just how cool they look. He thinks that if a company can't sell its gadgets well, its value will go down, even if it looks really cool.
Analysis
Market Enthusiasm vs. Revenue Growth
Alex Zhou, managing partner at Qiming Venture Partners, has remained restrained in his outlook on the AI market, despite the sector's recent surge in activity. He attributes this partly to favorable timing, policy support, and market conditions. However, he warns that factors such as scarcity, sector momentum, and high expectations for future growth may create a valuation premium, but this premium is an add-on rather than the foundation of a company's valuation.
According to Zhou, public markets will ultimately price companies using the price-to-sales method, meaning revenue multiplied by a valuation multiple. He emphasizes that revenue and commercial deployment are crucial in sustaining valuations, rather than relying on market enthusiasm or fear of missing out.
The Importance of Investment Discipline
Zhou stresses the importance of sticking to investment discipline and building a circle of competence before investing in a sector. He believes that investing before establishing a circle of competence is akin to gambling, and that most gambles are lost. He reminds Qiming's AI investment team that the more noise there is in the market, the more important philosophical and scientific thinking becomes.
The AI Market and the Internet Bubble
Zhou does not believe the AI market is currently in a severe bubble. He points to evidence such as the budgets of major companies and the China Development Forum's disclosure of domestic token consumption increasing 1,800-fold in two years. He remains optimistic, citing the long-term macro perspective and the fact that many people use the analogy of the internet bubble in 2000 to describe their worry about AI.
Investment Principles and the Future of the Sector
Zhou expects the sector to go next, and the investment principles Qiming continues to follow. He emphasizes the importance of sticking to investment discipline and building a circle of competence before investing in a sector. He also reminds Qiming's AI investment team that the more noise there is in the market, the more important philosophical and scientific thinking becomes.
Key points
- Alex Zhou emphasizes the importance of revenue and commercial deployment in sustaining valuations.
- He cautions against market enthusiasm and encourages investors to stick to their investment discipline.
- Zhou expects the sector to go next and the investment principles Qiming continues to follow.
- He remains optimistic about the long-term macro perspective and the fact that many people use the analogy of the internet bubble in 2000 to describe their worry about AI.
If the AI market continues to grow and companies can demonstrate genuine commercial deployment, the sector may see a sustained increase in valuations. This could lead to a positive outcome for investors who have stuck to their investment discipline and built a circle of competence.
If the AI market experiences a correction due to a lack of genuine commercial deployment, the sector may see a significant decrease in valuations. This could lead to a negative outcome for investors who have invested in companies without a clear path to revenue growth.
