Artificial sell-off?

Its stock has plunged

One of the more questionable applications of artificial intelligence is as a way of monitoring how students concentrate in class. That technique is said to have been deployed in a number of Chinese schools as teachers try to keep their students focused.

But a state-run AI research lab in Henan took things further this month by claiming that it had made an even greater breakthrough in developing AI technology that can read the minds of Communist Party members (of whom there are now 96 million in China).

In an hour-long video, the Hefei Comprehensive National Science Centre showed how cadres were being monitored by its “smart political education” kiosks while reading Party publications (volumes of Xi Jinping Thought and the like).

By analysing the facial expressions and brainwaves of the readers, the institute says its AI system can discern how receptive they are to “thought and political education”, and help to “solidify their confidence and determination to be grateful to the Party”.

The video got widespread attention online before it was taken down from social media. And the wider potential of AI applications in China has been a hot topic in the stockmarket this week too, following a selloff in the shares of one of the leading domestic firms in the sector, SenseTime.

The eight year-old company only went public in Hong Kong in early January as the first of the “AI concept” stocks. After raising HK$5.8 billion ($750 million) in bearish market, SenseTime’s share price briefly surged to a high of HK$9.7 – compared with its offering price of HK$3.85 – which gave it a market value of more than $42 billion.

Nevertheless the shares have nosedived this month, with the stock price falling more than 40% on Thursday last week. More than a billion shares changed hands in that session, versus a three-month average of less than 20 million shares. As of Thursday, the company was trading at about HK$2.7 a share after a 60% dive over five trading days, or to a level some 30% below its IPO price.

Some analysts are arguing that SenseTime’s fundamentals are sound and that the sell-off was mainly the result of an upsurge in the quantity of tradable stock after the expiry of a six-month lock-up period (put in place prior to the IPO).

According to its prospectus at the time, SenseTime had conducted at least 12 fundraising rounds between 2015 and 2020. As a result, its pre-IPO investors, who include the likes of Softbank, Alibaba, Qualcomm, Silver Lake and Tiger Global, held about 210 million shares, often at levels much lower than the post-IPO price. Investors who entered in the 10th fundraising (aka C-prime series) or earlier are still in the money as of this week, for instance, although those who came in for the final D-series fundraisings are in the red after the recent sell-off.

The so-called ‘cornerstone investors’, mainly Chinese institutions such as the Mixed Ownership Reform Fund, which were allocated about 1 billion shares in SenseTime’s offering, for two-thirds of the IPO at HK$3.85 apiece, are also worse off.

The lock-up period for pre-IPO and cornerstone investors had meant that only a limited number of SenseTime’s shares were tradable in the past six months. This helps to explain the relatively resilient share price performance at a time when many other Chinese tech stocks were battered – as well as the sharp sell-off that followed once a larger amount of tradable stock flooded into the market earlier this month.

As WiC has reported, Chinese AI firms including SenseTime have been cited on various sanctions lists in Washington as the trade and tech rows between China and the US have escalated. That has meant that they have been barred from buying some American-made components and technologies. It is looking increasingly likely that Washington might also block US investors from owning a fuller range of shares in blacklisted Chinese AI firms (new so-called ‘reverse CFIUS’ measures are going through Congress).

Meanwhile, in an attempt to show their confidence in SenseTime’s prospects, the company’s management has agreed to extend the lock-up period over their own stakes for another six months…

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