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People learn about Baidu’s artificial intelligence chatbot service Ernie Bot during the 2nd Global Digital Trade Expo at Hangzhou International Expo Center on November 23, 2023 in Hangzhou, Zhejiang Province of China. 

China News Service | China News Service | Getty Images

Nvidia’s rocket-ship ride in the stock market underscores the extent to which chip quality and availability will dictate the winners in the generative AI era. But there’s another aspect to measuring early leads in the space. In China, which is angling to produce its own chips or get more from Nvidia, no dominant gen AI contender to OpenAI has emerged yet among dozens of Chinese tech titans and startups.    

Late to the game, China is seeking to catch the lead of OpenAI in a wider U.S. AI market shaped by tech titans Microsoft, Alphabet’s Google and Amazon, and well-financed startups including Anthropic, which this week received a $2.7 billion infusion of cash from Amazon.

In the fast-moving field, the gap between the U.S. and its tech rival China is seen as wide. “The leading Chinese companies are benchmarking against ChatGPT, which indicates how far behind they are,” said Paul Triolo, senior vice president for China and technology policy lead at Dentons Global Advisors in Washington, D.C.

“Not too many companies can support their own large language model. It takes a lot of capital. Silicon Valley is definitely well ahead of the game,” said Jenny Xiao, a partner at AI VC firm Leonis Capital in San Francisco.

The U.S. remains the biggest investment market. Last year, funding of gen AI upstarts accounted for nearly half of $42.5 billion invested globally in artificial intelligence companies, according to CB Insights. In the U.S., VCs and corporate investors drove AI investment to $31 billion across 1,151 deals, led by large outlays in OpenAI, Anthropic and Inflection. This compares with $2 billion in 68 deals in China, which marked a large drop from 2022’s $5.5 billion in 377 deals. The fall-off is partly attributable to restrictions on of U.S. venture investment into China.

“China is at a big disadvantage in building the foundation models for Gen AI,” said Rui Ma, an AI investor and co-founder of investment syndicate and podcast TechBuzz China.  

But where China lags in foundational models, which are dominated by OpenAI and Google’s Gemini, it’s closing the gap by using Meta’s open source, large language model Llama 1, and Triolo said the Chinese contenders, if behind, are improving on the U.S. model.

“Many of the China models are effectively forks of Llama, and the consensus is that these forks are one to two years behind the leading U.S companies OpenAI and its video-to-text model Sora,” Ma said.

China does have the tech talent to make a difference in the AI rivalry in the years ahead.

A new study by think tank Marco Polo, run by the Paulson Institute, shows that the U.S. is home to 60% of top AI institutions, and the U.S. remains by far the leading destination for elite AI talent at 57% of the total, compared with China at 12%. But the research finds that China leads the U.S. by a few other measures, including being ahead of the U.S. in producing top-tier AI researchers, based on undergraduate degrees, with China at 47% and the U.S. lagging with 18%. Additionally, among top-tier AI researchers working at U.S. institutions, 38% have China as their country of origin, compared with 37% from the U.S.

New Chinese gen AI market entries can also reach mass adoption quickly. Baidu’s ChatGPT competitor, Ernie Bot, released in August 2023, reached 100 million users by the end of the year. Samsung is planning to integrate Baidu’s Ernie AI into its new Galaxy S smartphones while in another high-profile development that speaks to U.S.-China relations, Apple is in talks with Baidu about supplying the iPhone 16 with the Chinese company’s gen AI technology. 

Within its current slate of AI contenders, Baidu’s Ernie Bot models are considered among the most advanced, according to Leong.

Apple reportedly in talks with Baidu on AI for devices

Several other Chinese companies are forging ahead, funded by major players in its own technology market. Large cloud companies such as such as Baidu and Alibaba, social media players ByteDance and Tencent, and tech companies SenseTime, iFlyTek, Megvii and Horizon Robotics, as well as research institutes, are all aiding the effort. 

Moonshot AI, funded by China’s e-commerce giant Alibaba and VC firm Hongshan (previously Sequoia China), is building large language models that can handle long content inputs. Meanwhile, former Google China president Kai-Fu Lee has developed an open source gen AI model, 01.AI, funded by Alibaba and his firm Sinovation Ventures.   

While China has accelerated development of its homegrown chip industry and advanced AI, its AI development has been limited in part by U.S. restrictions on exporting high-end AI chips, a market cornered by Nvidia, as part of a new battleground for tech supremacy between the U.S. and China

“Despite efforts to develop indigenous solutions, Chinese AI developers still largely rely on foreign hardware, particularly from U.S. companies, which is a vulnerability in the current geopolitical climate,” said Bernard Leong, founder and CEO of tech advisory Analyse Asia in Singapore.    

The ongoing tensions between the U.S. and China over technology innovation and national security issues is leading to a split in gen AI development, following the pattern of other impactful technologies caught up in superpower tech arms races. Given regulations and bans over sensitive, cutting-edge technologies, the likely outcome is two parallel ecosystems for gen AI, one in the U.S. and one in China. ChatGPT is blocked in China while Baidu’s Ernie Bot can only be accessed in the U.S. with a mainland Chinese cell phone number. “U.S. companies can’t go into China and Chinese companies can’t go into the U.S.,” Xiao said.  

U.S. Secretary of Commerce Gina Raimondo has stated that a goal of U.S. curbs on AI chip exports is to prevent China from acquiring or producing advanced chips. As mainland China focuses on homegrown capabilities, Chinese companies SMIC or Huawei could be an alternative to Nvidia. But the future for alternates is likely uncertain if export controls cut off these companies from the most advanced designs for manufacturing. Triolo noted that Huawei recently developed a series of AI chips as a rival to Nvidia.  

China is getting ahead in applying AI to certain categories, such as computer vision. “The chip shortage is very important for training foundational models where you need certain chips, but for applications, you don’t need that,” Ma said.

The “real killer app” for gen AI, according to Triolo, will be in companies that are willing to pay money to harness the technology as part of their business operations. Alibaba is focusing on integrating AI into its e-commerce ecosystem. Huawei, while competing more successfully against Apple’s iPhone in the consumer market in the past year, also has broader ambitions, developing AI for specific industries including mining, using its in-house hardware, Leong said.

Boston Consulting Group research suggests it may be a while before this wider gen AI market ramps outside of tech. Sixty percent of 1,400 executives surveyed are waiting to see how gen AI regulations develop, while only 6 percent of companies have trained their employees on gen AI tools.

AI and tech issues are front and center for China’s leadership, with the country’s release of guardrails on AI in 2023 after ChatGPT’s breakthrough, and then modifications of some measures.

The open source gen AI technology many Chinese developers use can encourage collaboration among globally and lead to shared insights as AI advances, but Leong said open source also leads to issues related to ensuring quality and security of the models, as well as managing bias and potential misuse of AI.

“China wants to make sure content is not spewing out. They also want their companies to lead and are willing to reign in draconian measures,” Triolo said.

Ethical and social concerns hinder gen AI advances in China as well as other regions, including the U.S., as see in the battle for control over OpenAI’s mission. Within China, there is another factor that could slow AI acceleration, according to Leong: maintaining control of gen AI applications, especially in areas sensitive to state interests.

Ben Horowitz: We have to make sure AI regulation doesn't slow down the tech industry

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Apple scores big victory with ‘F1,’ but AI is still a major problem in Cupertino

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Apple scores big victory with 'F1,' but AI is still a major problem in Cupertino

Formula One F1 – United States Grand Prix – Circuit of the Americas, Austin, Texas, U.S. – October 23, 2022 Tim Cook waves the chequered flag to the race winner Red Bull’s Max Verstappen 

Mike Segar | Reuters

Apple had two major launches last month. They couldn’t have been more different.

First, Apple revealed some of the artificial intelligence advancements it had been working on in the past year when it released developer versions of its operating systems to muted applause at its annual developer’s conference, WWDC. Then, at the end of the month, Apple hit the red carpet as its first true blockbuster movie, “F1,” debuted to over $155 million — and glowing reviews — in its first weekend.

While “F1” was a victory lap for Apple, highlighting the strength of its long-term outlook, the growth of its services business and its ability to tap into culture, Wall Street’s reaction to the company’s AI announcements at WWDC suggest there’s some trouble underneath the hood.

“F1” showed Apple at its best — in particular, its ability to invest in new, long-term projects. When Apple TV+ launched in 2019, it had only a handful of original shows and one movie, a film festival darling called “Hala” that didn’t even share its box office revenue.

Despite Apple TV+ being written off as a costly side-project, Apple stuck with its plan over the years, expanding its staff and operation in Culver City, California. That allowed the company to build up Hollywood connections, especially for TV shows, and build an entertainment track record. Now, an Apple Original can lead the box office on a summer weekend, the prime season for blockbuster films.

The success of “F1” also highlights Apple’s significant marketing machine and ability to get big-name talent to appear with its leadership. Apple pulled out all the stops to market the movie, including using its Wallet app to send a push notification with a discount for tickets to the film. To promote “F1,” Cook appeared with movie star Brad Pitt at an Apple store in New York and posted a video with actual F1 racer Lewis Hamilton, who was one of the film’s producers.

(L-R) Brad Pitt, Lewis Hamilton, Tim Cook, and Damson Idris attend the World Premiere of “F1: The Movie” in Times Square on June 16, 2025 in New York City.

Jamie Mccarthy | Getty Images Entertainment | Getty Images

Although Apple services chief Eddy Cue said in a recent interview that Apple needs the its film business to be profitable to “continue to do great things,” “F1” isn’t just about the bottom line for the company.

Apple’s Hollywood productions are perhaps the most prominent face of the company’s services business, a profit engine that has been an investor favorite since the iPhone maker started highlighting the division in 2016.

Films will only ever be a small fraction of the services unit, which also includes payments, iCloud subscriptions, magazine bundles, Apple Music, game bundles, warranties, fees related to digital payments and ad sales. Plus, even the biggest box office smashes would be small on Apple’s scale — the company does over $1 billion in sales on average every day.

But movies are the only services component that can get celebrities like Pitt or George Clooney to appear next to an Apple logo — and the success of “F1” means that Apple could do more big popcorn films in the future.

“Nothing breeds success or inspires future investment like a current success,” said Comscore senior media analyst Paul Dergarabedian.

But if “F1” is a sign that Apple’s services business is in full throttle, the company’s AI struggles are a “check engine” light that won’t turn off.

Replacing Siri’s engine

At WWDC last month, Wall Street was eager to hear about the company’s plans for Apple Intelligence, its suite of AI features that it first revealed in 2024. Apple Intelligence, which is a key tenet of the company’s hardware products, had a rollout marred by delays and underwhelming features.

Apple spent most of WWDC going over smaller machine learning features, but did not reveal what investors and consumers increasingly want: A sophisticated Siri that can converse fluidly and get stuff done, like making a restaurant reservation. In the age of OpenAI’s ChatGPT, Anthropic’s Claude and Google’s Gemini, the expectation of AI assistants among consumers is growing beyond “Siri, how’s the weather?”

The company had previewed a significantly improved Siri in the summer of 2024, but earlier this year, those features were delayed to sometime in 2026. At WWDC, Apple didn’t offer any updates about the improved Siri beyond that the company was “continuing its work to deliver” the features in the “coming year.” Some observers reduced their expectations for Apple’s AI after the conference.

“Current expectations for Apple Intelligence to kickstart a super upgrade cycle are too high, in our view,” wrote Jefferies analysts this week.

Siri should be an example of how Apple’s ability to improve products and projects over the long-term makes it tough to compete with.

It beat nearly every other voice assistant to market when it first debuted on iPhones in 2011. Fourteen years later, Siri remains essentially the same one-off, rigid, question-and-answer system that struggles with open-ended questions and dates, even after the invention in recent years of sophisticated voice bots based on generative AI technology that can hold a conversation.

Apple’s strongest rivals, including Android parent Google, have done way more to integrate sophisticated AI assistants into their devices than Apple has. And Google doesn’t have the same reflex against collecting data and cloud processing as privacy-obsessed Apple.

Some analysts have said they believe Apple has a few years before the company’s lack of competitive AI features will start to show up in device sales, given the company’s large installed base and high customer loyalty. But Apple can’t get lapped before it re-enters the race, and its former design guru Jony Ive is now working on new hardware with OpenAI, ramping up the pressure in Cupertino.

“The three-year problem, which is within an investment time frame, is that Android is racing ahead,” Needham senior internet analyst Laura Martin said on CNBC this week.

Apple’s services success with projects like “F1” is an example of what the company can do when it sets clear goals in public and then executes them over extended time-frames.

Its AI strategy could use a similar long-term plan, as customers and investors wonder when Apple will fully embrace the technology that has captivated Silicon Valley.

Wall Street’s anxiety over Apple’s AI struggles was evident this week after Bloomberg reported that Apple was considering replacing Siri’s engine with Anthropic or OpenAI’s technology, as opposed to its own foundation models.

The move, if it were to happen, would contradict one of Apple’s most important strategies in the Cook era: Apple wants to own its core technologies, like the touchscreen, processor, modem and maps software, not buy them from suppliers.

Using external technology would be an admission that Apple Foundation Models aren’t good enough yet for what the company wants to do with Siri.

“They’ve fallen farther and farther behind, and they need to supercharge their generative AI efforts” Martin said. “They can’t do that internally.”

Apple might even pay billions for the use of Anthropic’s AI software, according to the Bloomberg report. If Apple were to pay for AI, it would be a reversal from current services deals, like the search deal with Alphabet where the Cupertino company gets paid $20 billion per year to push iPhone traffic to Google Search.

The company didn’t confirm the report and declined comment, but Wall Street welcomed the report and Apple shares rose.

In the world of AI in Silicon Valley, signing bonuses for the kinds of engineers that can develop new models can range up to $100 million, according to OpenAI CEO Sam Altman.

“I can’t see Apple doing that,” Martin said.

Earlier this week, Meta CEO Mark Zuckerberg sent a memo bragging about hiring 11 AI experts from companies such as OpenAI, Anthropic, and Google’s DeepMind. That came after Zuckerberg hired Scale AI CEO Alexandr Wang to lead a new AI division as part of a $14.3 billion deal.

Meta’s not the only company to spend hundreds of millions on AI celebrities to get them in the building. Google spent big to hire away the founders of Character.AI, Microsoft got its AI leader by striking a deal with Inflection and Amazon hired the executive team of Adept to bulk up its AI roster.

Apple, on the other hand, hasn’t announced any big AI hires in recent years. While Cook rubs shoulders with Pitt, the actual race may be passing Apple by.

WATCH: Jefferies upgrades Apple to ‘Hold’

Jefferies upgrades Apple to 'Hold'

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Musk backs Sen. Paul’s criticism of Trump’s megabill in first comment since it passed

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Musk backs Sen. Paul's criticism of Trump's megabill in first comment since it passed

Tesla CEO Elon Musk speaks alongside U.S. President Donald Trump to reporters in the Oval Office of the White House on May 30, 2025 in Washington, DC.

Kevin Dietsch | Getty Images

Tesla CEO Elon Musk, who bombarded President Donald Trump‘s signature spending bill for weeks, on Friday made his first comments since the legislation passed.

Musk backed a post on X by Sen. Rand Paul, R-Ky., who said the bill’s budget “explodes the deficit” and continues a pattern of “short-term politicking over long-term sustainability.”

The House of Representatives narrowly passed the One Big Beautiful Bill Act on Thursday, sending it to Trump to sign into law.

Paul and Musk have been vocal opponents of Trump’s tax and spending bill, and repeatedly called out the potential for the spending package to increase the national debt.

On Monday, Musk called it the “DEBT SLAVERY bill.”

The independent Congressional Budget Office has said the bill could add $3.4 trillion to the $36.2 trillion of U.S. debt over the next decade. The White House has labeled the agency as “partisan” and continuously refuted the CBO’s estimates.

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The bill includes trillions of dollars in tax cuts, increased spending for immigration enforcement and large cuts to funding for Medicaid and other programs.

It also cuts tax credits and support for solar and wind energy and electric vehicles, a particularly sore spot for Musk, who has several companies that benefit from the programs.

“I took away his EV Mandate that forced everyone to buy Electric Cars that nobody else wanted (that he knew for months I was going to do!), and he just went CRAZY!” Trump wrote in a social media post in early June as the pair traded insults and threats.

Shares of Tesla plummeted as the feud intensified, with the company losing $152 billion in market cap on June 5 and putting the company below $1 trillion in value. The stock has largely rebounded since, but is still below where it was trading before the ruckus with Trump.

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Tesla one-month stock chart.

— CNBC’s Kevin Breuninger and Erin Doherty contributed to this article.

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Microsoft layoffs hit 830 workers in home state of Washington

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Microsoft layoffs hit 830 workers in home state of Washington

Microsoft CEO Satya Nadella speaks at the Axel Springer building in Berlin on Oct. 17, 2023. He received the annual Axel Springer Award.

Ben Kriemann | Getty Images

Among the thousands of Microsoft employees who lost their jobs in the cutbacks announced this week were 830 staffers in the company’s home state of Washington.

Nearly a dozen game design workers in the state were part of the layoffs, along with three audio designers, two mechanical engineers, one optical engineer and one lab technician, according to a document Microsoft submitted to Washington employment officials.

There were also five individual contributors and one manager at the Microsoft Research division in the cuts, as well as 10 lawyers and six hardware engineers, the document shows.

Microsoft announced plans on Wednesday to eliminate 9,000 jobs, as part of an effort to eliminate redundancy and to encourage employees to focus on more meaningful work by adopting new technologies, a person familiar with the matter told CNBC. The person asked not to be named while discussing private matters.

Scores of Microsoft salespeople and video game developers have since come forward on social media to announce their departure. In April, Microsoft said revenue from Xbox content and services grew 8%, trailing overall growth of 13%.

In sales, the company parted ways with 16 customer success account management staff members based in Washington, 28 in sales strategy enablement and another five in sales compensation. One Washington-based government affairs worker was also laid off.

Microsoft eliminated 17 jobs in cloud solution architecture in the state, according to the document. The company’s fastest revenue growth comes from Azure and other cloud services that customers buy based on usage.

CEO Satya Nadella has not publicly commented on the layoffs, and Microsoft didn’t immediately provide a comment about the cuts in Washington. On a conference call with analysts in April, Microsoft CFO Amy Hood said the company had a “focus on cost efficiencies” during the March quarter.

WATCH: Microsoft layoffs not performance-based, largely targeting middle managers

Microsoft layoffs not performance-based, largely targeting middle managers

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