Summary of Key Points
Zhipu’s stock price has been experiencing wild fluctuations recently: after reaching a market value of HK$700 billion at the end of May, it has seen consecutive declines. Meanwhile, the company announced plans to raise funds of RMB 15 billion through the STAR Market. Its current valuation seems “exorbitantly high” (with a price-to-sales ratio of 750 times and forecasted revenue of RMB 700 million in 2025 while still incurring a loss of RMB 4.6 billion). However, the market is not buying into its current profits but betting on its potential to become the “Chinese version of Anthropic” – a company that generates stable income through top-tier AI models and enterprise-level API services. Whether this high valuation can be sustained depends on whether Zhipu can transform its revenue model from one based on one-time projects to a sustainable API-based business, as well as whether it can create a profitable closed-loop. In the short term, investors should also be wary of potential stock price volatility due to the share lock-up period ending in July.
I. What Exactly Is the Market Buying When Valuing Zhipu So High?
The market is not buying into Zhipu’s current profits (given its significant losses) but rather the probability that it will become China’s leading AI infrastructure platform. For example, Anthropic, an American AI company, has seen its valuation soar from RMB 61.5 billion to nearly one trillion in just 14 months by turning its models into API services and charging companies based on usage. The key to this success is its annual recurring revenue (ARR), which increased from RMB 2 billion to RMB 44 billion – a model that is both stable and scalable, making it a highly sought-after “money-making machine” for investors.
Zhipu is seen as the Chinese equivalent of Anthropic, which is why, despite its current revenue of only RMB 700 million, its market value has reached RMB 550 billion. Investors are betting that Zhipu will follow in Anthropic’s footsteps and generate substantial profits through API services.
II. Why Could Zhipu Become the “Chinese Version of Anthropic”?
There are two main reasons for this optimism:
1. Strong Technical Foundation, Ranking Among the Top
Zhipu’s GLM (Generative Language Model) has performed exceptionally well in international tests. For instance, it is one of the few models capable of handling complex tasks over 8 hours, and its programming capabilities are among the best among open-source models. Its overall strength places it at the forefront in China, closely matching Anthropic’s level. These technologies have already been monetized; in 2024, Zhipu became the highest-income company among independent large-scale AI companies in China, with over 9 internet firms (including ByteDance and Alibaba) using its models. It also has a user base of more than 4 million registered users and 240,000 paying developers.
2. Support from the “National Team,” Providing a Critical Advantage
Developed by a Tsinghua University research lab, Zhipu boasts a “self-reliant and controllable” infrastructure, enabling it to enter industries with high security requirements such as finance and government services. For example, state-owned investors in Beijing and Hangzhou have invested RMB 3 billion, providing computing resources and orders. Shanghai has provided green energy computing power, while Hangzhou’s urban investment department is collaborating on an “AI-driven urban management system” (used for flood control and public transportation optimization). These resources have helped Zhipu secure stable early-stage contracts, paving the way for its transition to an API-based business model.
III. Two Challenges to Sustain the High Valuation
To turn this high valuation into reality, two issues need to be addressed:
1. Transforming Revenue Structure from Project-Based to API-Based
Currently, most of Zhipu’s revenue comes from one-time privatization deals where companies purchase its models for internal use, with API sales accounting for only 26%. To achieve similar profitability as Anthropic, API sales must exceed 50%.
2. Creating a Profitable Closed-Loop
This means ensuring that customers stay loyal, usage increases, costs decrease, and the solutions can be easily replicated across different industries. Specific goals include:
- Customer Retention: In the first quarter of this year, despite price increases, Zhipu’s customer retention rate rose by 94% (a positive trend), with usage increasing by 400%.
- Usage Growth: Annual recurring revenue (ARR) needs to increase by 60 times to reach RMB 1.7 billion within 12 months, indicating rapid growth.
- Profit Margin: The API business’s margin has risen from 3.3% to 18.9%, demonstrating the benefits of scale.
- Solution Replicability: Can Zhipu’s models be successfully applied in other industries (e.g., flood control in water management or public transportation optimization)?
Only by achieving these goals can Zhipu’s valuation remain stable; otherwise, its potential as the “Chinese Anthropic” could become a source of pressure.
IV. What Should Investors Be Aware Of?
1. Short-Term Risk: Share Lock-Up Expiration in July
Currently, only 2.67% of Zhipu’s shares are tradable. After the lock-up period ends in July, 5.76% of the shares held by cornerstone investors will become available, doubling the trading volume. Early investors who have seen substantial gains may sell their shares, putting pressure on the stock price.
2. Long-Term Focus: Two Key Indicators
- The proportion of revenue from cloud-based API services (a sign of a true API platform).
- Growth in overseas sales: While Anthropic dominates the global market, Zhipu’s international sales account for only 10%. Can it expand its share in regions like Singapore and Malaysia?
If these indicators improve, the high valuation may be justified by future growth; otherwise, it could lead to a correction in stock price.
Final Thoughts
Zhipu’s high valuation reflects a combination of industry logic (its technical capabilities and market presence) and market sentiment (the belief that it will become China’s leading AI platform). However, whether the valuation is justified depends on whether Zhipu can turn its potential into reality. After all, investors are investing in future possibilities, not current profits.
Disclaimer: This article does not constitute investment advice; please approach any investment decisions with caution.