Artificial intelligence investments by US tech giants continue to soar, dwarfing those of Chinese AI firms, but China’s rising appetite for AI applications will compel its tech companies to increase their AI spending this year, according to analysts.

The largest US tech companies are on track for more than US$700 billion in AI capital expenditures this year, driven in part by rising memory costs and continuously growing demand for AI applications.

Google and Microsoft on Thursday both said that their full-year capex would reach about US$190 billion, while Meta Platforms raised its capex estimates for this year to US$145 billion. Amazon kept its outlook unchanged from last year at US$200 billion.

AI spending by Chinese tech firms represented a fraction of the US level, according to analyst estimates. Chinese cloud service providers would likely spend US$105 billion this year, according to a Morgan Stanley research report last week.

Last year, the AI capex of China’s internet giants stood at 400 billion yuan (US$59 billion), about a tenth as much as their US peers, said Wei Xiong, UBS China internet industry analyst, in a report in December. Despite this “prudent” spending, Chinese firms had developed large AI models of similar calibre to those from the US, Xiong added.

“China’s AI investment scale can’t be directly compared to that of US hyperscalers as proof that it’s not investing enough in computing power, and it certainly doesn’t mean the ‘good enough’ cost-effective Chinese models are not generating comparable business returns on the market,” said Tilly Zhang, China technology and industrial policy analyst at research firm Gavekal.

Faced with restrictions on purchasing the most advanced and expensive US chips for AI training and commercial use, Chinese firms have relied more on software and algorithm improvements, she said.