China’s robotics stocks face investor scrutiny over bubble fears

[BEIJING] Investor hype over Chinese robotics stocks is giving way to deepening unease, with the latest government warning against a potential bubble bringing fresh scrutiny to the sector’s lofty valuations.

The Solactive China Humanoid Robotics Index surged nearly 60 per cent this year to an October high, thanks to an earlier wave of bullish bets driven by supportive policies and viral clips of dancing, kickboxing, and racing humanoid robots. The sector, which blends China’s artificial intelligence (AI) prowess and manufacturing strength, formed a core part of Beijing’s push to cultivate strategic industries.

Yet the rapid ascent has also underscored the risks of a fledgling sector running ahead of fundamentals. The gauge has fallen nearly 20 per cent from its high, and the growing caution echoes Wall Street’s nervousness about AI firms’ stretched valuations and massive spending. To add to the jitters, Beijing this week issued a rare warning of risks in the overcrowded industry.

“I am neutral on robotics stocks now because their valuations are already high and only a few of them will secure positions in each stage of the supply chain,” said Fu Zhifeng, chief investment officer at Shanghai Chengzhou Investment Management. “In the long term, perhaps just one or two companies may emerge from the crowded field as winners.”

Among the top performers, UBTech Robotics’s shares have more than doubled this year even as it posted a first-half loss of 414 million yuan (S$76 million). Ningbo Zhongda Leader Intelligent Transmission has surged 186 per cent this year, despite a 19 per cent drop in third-quarter net profit.

The sector’s price-to-earnings ratio is around 58 times on a forward 12-month basis, versus 32 times for the CSI 300 Information Technology Index, Bloomberg-compiled data show.

The PE ratio is “overdrawing performance expectations for the next year”, said Ravi Wong, first vice-president at Yan Yun Family Office. “While core component firms saw over 20 per cent revenue growth, over 70 per cent of humanoid and service robot startups remained loss-making, failing to meet the market’s overall high-growth expectations.”

Morgan Stanley also cast doubt on investors’ exuberance, questioning robots’ industrial use given their low efficiency compared with humans. In a recent note, its analysts said while optimists expect humanoid industry volume to surpass 100,000 units in 2026, they see 12,000 units in 2026 and 114,000 in 2030.

China’s top economic-planning agency on Thursday (Nov 27) called attention to the proliferation of remarkably similar robots from more than 150 firms. The country must prevent that flood from overwhelming the market and squeezing out real research and development initiatives, it said. Beijing has been on a so-called anti-involution drive this year, aiming to curb destructive competition across industries.

“The move is to prevent local governments from rushing into projects under the banner of emerging technologies, which often leads to low-quality and inefficient investments,” said Shanghai Chengzhou’s Fu. “Local authorities tend to have a herd mentality, even when they lack the necessary resources and capabilities.”

Policymakers’ caution came after humanoid robot development and investment exploded since Hangzhou Unitree Technology’s dancing droids charmed a nationwide audience during the Spring Festival Gala. Beijing also has designated the industry one of six new economic growth drivers, in guidelines for drafting China’s development plan for the five years to 2030.

To be sure, optimists say China’s advantages in the supply chain, which include lower costs and a vast pool of engineers, will continue to help the industry thrive in the long run. Citigroup expects humanoid robots to see “exponential” production growth next year. The government’s warning may also help consolidate industry leaders and promote healthier competition.

But the journey ahead will unlikely be a smooth one. Goldman Sachs notes that the performance of key products and tangible end-use cases will be critical in determining whether a technology inflection point is approaching.

Given the uncertainties, investors may need to adopt a more selective approach when picking stocks, analysts say.

“Looking ahead, as scale production drives costs down, core components become localised, and B2B applications gain traction, the industry’s growth path will become clearer and profitability will gradually emerge,” said Cheng Qiang, director and chief economist at Topsperity Securities Research Institute. BLOOMBERG