Chinese AI startups that recently debuted in Hong Kong are facing a critical test this coming July. After impressive initial surges, their high valuations are set to collide with market realities, and the catalyst is a structural feature of the Hong Kong stock market.
The heart of the issue lies in Hong Kong's IPO system, particularly the role of cornerstone investors. These are large institutions that agree to buy a significant chunk of shares before the IPO and, crucially, hold them for a mandatory six-month lock-up period. For newly listed AI firms like Zhipu and Minimax, this meant a large portion of their shares—in Zhipu's case, nearly 70% of the offering—was not available for trading. This artificial scarcity, combined with high investor enthusiasm for AI, sent their stock prices soaring.
However, this carefully constructed scarcity is set to end in early July when the lock-up period expires. This triggers a powerful two-pronged mechanism that could pressure stock prices. First, millions of previously restricted shares will become available to trade, creating a potential supply glut or 'overhang'. Second, this flood of new shares makes it much easier and cheaper for traders to borrow stock for short selling, betting that the price will fall. The increased supply and the facilitation of short selling create a perfect setup for a price correction.
This supply shock isn't happening in a vacuum. Two other major pressures are mounting. Firstly, a fierce price war is raging in China's LLM market, with tech giants like ByteDance and Tencent slashing API prices by as much as 99%. This makes it incredibly difficult for startups to justify their high valuations with a clear path to profitability. Secondly, the market is bracing for a wave of new AI IPOs from competitors like StepFun and Moonshot, which will divert investment capital and force investors to re-evaluate existing players.
In essence, the 'scarcity premium' that propelled these stocks is about to be challenged. The market will soon shift its focus from hype to fundamentals, testing whether these companies' growth prospects can support their premium valuations in an increasingly crowded and competitive field.
- Cornerstone Investor: A large institutional investor that agrees to purchase a significant amount of shares before an IPO and is subject to a lock-up period, providing stability to the listing.
- Lock-up: A period after an IPO during which certain shareholders, like insiders and cornerstone investors, are contractually forbidden from selling their shares.
- Short Selling: The practice of selling borrowed shares with the expectation of buying them back at a lower price in the future to profit from the difference.