Tencent, Alibaba set to prevail in China AI, despite DeepSeek

This analysis is by Bloomberg Intelligence Senior Industry Analyst Robert Lea and Associate Analyst Jasmine Lyu. It appeared first on the Bloomberg Terminal.

Tencent and Alibaba remain well placed as the future leaders of China’s AI software sector, as DeepSeek positions itself as more of a technology enabler. ByteDance and Huawei can also prosper, though Tencent and Alibaba’s broader scale should see them prevail. Baidu is set to further lose share as it struggles to compete with deep-pocketed rivals.

DeepSeek to help drive wider AI adoption in China

The rapid ascent of DeepSeek, which has high-level central government support, positions it as the poster child of China’s AI sector. DeepSeek’s innovative models have been widely adopted by China’s leading corporations since the firm came to wider prominence in January. The rapid integration of DeepSeek’s models by AI specialists, including Baidu, highlights a likely high level of behind-the-scenes orchestration, as China’s government is trying to accelerate the adoption of artificial intelligence in the broader economy.

DeepSeek’s role as a technology enabler should help democratize AI within China, providing smaller firms and app developers cheap and easy access to leading-edge large language models. This in turn should help stimulate the wider adoption of AI in China and a proliferation of new AI apps.

DeepSeek to lead in AI development, not direct commercialization

Though DeepSeek is positioned as the top provider of necessary core technology for China’s AI development, we don’t view it as a future sector leader given its lesser focus on commercialization. DeepSeek founder Liang Wenfeng is against charging for the firm’s model which remains free to access, according to a Wall Street Journal report. Liang was reportedly averse to the introduction of external investment, implying the probability of a near-term IPO is likely low.

We expect DeepSeek’s focus to remain, for now, on AI’s technical development and broader proliferation in Chinese society. The firm’s altruistic motives echo those of OpenAI, which was founded as a nonprofit corporation in 2015. It remains to be seen whether DeepSeek will change tact to pursue a more commercial objective in the future.

Alibaba and Tencent to lead China’s AI sector, despite DeepSeek

Tencent and Alibaba remain well placed as the future leaders of China’s artificial intelligence sector, despite DeepSeek’s growing profile, though we expect their AI ventures to remain unprofitable in aggregate over the next three years. The superior resources of the two firms puts them in a better position to deliver best-in-class solutions, attract talent and invest in promising startups. Their broad reach is a further advantage, opening opportunities to cross-sell AI products across their platforms, as well as leverage AI internally to generate cost savings.

Their deep pool of customer data is a further competitive edge, as it enables both firms to more effectively train and refine their AI models, while their lead in China’s cloud computing industry provides an additional route to market and revenue sources.

Huawei and ByteDance lack full spectrum of AI capabilities

Huawei and ByteDance should also prosper in China’s AI sector, though they lack the full spectrum of capabilities — AI cloud, large language models (LLM) and application software — needed to lead. ByteDance’s limited cloud presence, weaker positioning in LLMs and relative narrow application software portfolio place it at a strategic disadvantage. ByteDance is also coming from behind, as a relative late adopter of AI, though it has made swift progress since, as exemplified by its in-demand Doubou AI chatbot.

Huawei’s weaker software position makes it a laggard among China’s “big-four” tech firms, though its close ties with Beijing should continue to open up opportunities at state-owned enterprises and in governmental sectors. Huawei should retain its position as China’s national champion in AI hardware and semiconductors.

Baidu to continue losing share in China’s AI sector

Baidu’s once leading position in China’s AI sector looks set to erode further as its thinly-stretched business struggles in an increasingly competitive market. Baidu lacks the ability to carve out a defensible niche, given the sector’s low-barriers to entry. It also lacks the scale and resources to compete effectively with China’s large technology platforms in the long run and we expect its unprofitable AI ventures to remain loss-making during the next three years.

Baidu’s Ernie AI bot has progressively lost market share this year to aggressive new rivals, including DeepSeek, which was ranked as China’s most popular AI chatbot by website visits, in March 2025. Baidu’s AI cloud business also faces rising competition from China’s hyperscalers, including Huawei and the three national telcos.

Bloomberg Terminal subscribers can access full version of this analysis via BI <GO>.