Chinese hedge funds that built substantial positions around the AI boom are largely maintaining their exposure despite a sharp reversal in performance, although several managers are warning that the investment cycle faces growing risks, according to a report by Bloomberg.

Investor letters from seven Chinese hedge funds reviewed by Bloomberg show that managers remain broadly constructive on AI, with some arguing that the heavy sell-off in July marked the low point of the current correction.

Shanghai Chaser Asset Management said the July rout represented the bottom of the cycle for now, while Intewise Capital Management chairman Liu Xiaolong described the correction as probably having run its course.

However, the funds also highlighted concerns over the scale of investment required to sustain the AI boom, its potential impact on employment and the difficulty of assessing where capital is ultimately being deployed.

The comments provide an insight into how Chinese alternative asset managers are assessing a technology theme that has become a major driver of equity markets worldwide. Despite the geopolitical competition between the US and China in AI, the managers largely focused on global issues surrounding the sector rather than challenges specific to China's domestic market.

Hunjin Capital said AI companies could need as much as $700bn in annual recurring revenue next year to justify the level of spending required to maintain the current investment cycle. That would represent an increase of roughly $500bn and, according to the firm, could require AI technology to displace around four million workers in coding-related roles alone.

Beijing Ren Bridge Asset Management meanwhile used its August investor letter to examine Nvidia's outlook after the chipmaker issued strong guidance for its next fiscal year.

The firm compared Nvidia's position with Microsoft's experience around the launch of Windows Vista nearly two decades ago. Although the software upgrade initially encouraged demand for new computer hardware, Ren Bridge argued that the resulting cycle ultimately weighed on Microsoft's share price.

Shanghai Fusheng Assets Management chairman and portfolio manager Lu Hang described AI as a "generational variable" in the firm's July letter. At the same time, Fusheng said the period when investors could generate relatively easy returns from the theme appeared to be ending, with stock selection increasingly becoming a question of "who invests better" rather than simply who spends the most.

Four of the seven funds examined had maintained an AI investment bias going into the July sell-off, although some subsequently reduced their exposure. Those managers nevertheless recorded gains of at least 19% for the year through 31 July.

By contrast, three funds that had largely avoided AI hardware — Ren Bridge, Ridou Investment Management and Qinchen Asset Management — were each down more than 8% over the same period.

The divergence illustrates the extent to which AI positioning has shaped returns among China's larger hedge funds this year. Shanghai Chaser, Ren Bridge, Intewise, Ridou, Qinchen and Fusheng each manage more than RMB10bn ($1.5bn), according to data from China's asset management association, while Hunjin Capital oversees more than 5bn yuan.

The July sell-off was particularly severe for some of the managers that had benefited from the AI rally. Chaser's globally allocated fund fell 34% in July, while Intewise's multi-strategy fund declined 29%, compared with an 8% drop in the CSI 300 Index.

Despite those losses, both funds remained more than 30% higher for the year through the end of August.

Hunjin's Yueyang fund had reduced its AI exposure by roughly 40% before and during the sell-off but still fell 12.6% in July. It recorded a small loss in August but remained up about 16% for the year