China's latest star AI model is putting 2 tech giants back in the spotlight

China's Kimi K3 has emerged as the latest AI model sensation, drawing so much interest that developer Moonshot AI temporarily paused new subscriptions just days after launch.

"K3 represented another instance where the ability of China's top AI labs to keep pace with the US frontier has surprised global investors," Bernstein analysts led by Robin Zhu wrote in a Friday note.

Beyond the excitement surrounding Moonshot itself, Kimi's breakout is bringing fresh attention to Chinese tech giants Alibaba and Tencent, both investors in the startup.

Alibaba acquired a 36% stake in Moonshot during a February 2024 funding round, while Tencent is also a known investor.

But their opportunity extends beyond their Moonshot stakes, Bernstein's analysts wrote. As AI models become more competitive, cloud providers and internet platforms stand to gain bargaining power over the model makers.

For Alibaba, Bernstein said Kimi's success is "probably a positive for Alicloud revenue growth."

Tencent, meanwhile, may have an overlooked asset in Workbuddy, its desktop AI assistant, which has 8 million to 9 million monthly visits.

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Alibaba shares rose as much as 6% in Hong Kong on Monday, while Tencent gained 4%. The Hang Seng Tech Index climbed 4%, as Kimi reignited the AI narrative that DeepSeek helped spark last year. The broader Hang Seng Index added over 2%.

The enthusiasm for Kimi has also fueled a broader debate over AI economics.

AI chip stocks sold off sharply on Friday, with investors questioning whether lower-cost Chinese models could reduce the need for the massive AI infrastructure spending underpinning the current boom.

Chinese AI models are approaching frontier-level performance while priced closer to mid-tier US systems.

"That challenges the economics of the current US-led AI stack, where frontier capability has been associated with very high compute and capital intensity," Deutsche Bank analyst Jim Reid wrote in a note on Monday.

The concerns weighed on South Korea's stock markets, which were on a red-hot rally until late last month,

On Monday, South Korea's benchmark Kospi index closed 4% lower as index heavyweight Samsung Electronics and SK Hynix both lost over 4%. The Kospi is now 28% lower than a month ago, although it's still 55% higher this year to date.

The Japanese markets were closed for a public holiday.