The artificial intelligence race in China shows no signs of slowing down. Recent weeks have seen new model releases from DeepSeek, Moonshot AI, Alibaba, and even Xiaomi, as companies compete fiercely for leaderboard rankings. Across the industry, from emerging AI startups to established tech giants, firms are under increasing pressure to innovate, grow their user base, and discover sustainable revenue streams. Simultaneously, they must balance substantial research and development expenditures with escalating costs for computing infrastructure and hardware.

SenseTime, an early pioneer in China’s AI sector, has shifted its focus to remain competitive in the generative AI landscape. Once renowned for facial and image recognition technologies, the company now creates multimodal systems capable of processing text, audio, and visual information simultaneously.

Established in Hong Kong in 2014, SenseTime has been subject to U.S. sanctions over claims regarding the surveillance of Muslim minorities in Xinjiang, which the company has consistently denied.

Its newest model, SenseNova U1, merges language and vision processing into a unified framework, enhancing speed and efficiency by eliminating the need to convert between different data formats.

SenseTime is leveraging cost efficiency as a key competitive advantage. According to cofounder and chief scientist Lin Dahua, the company has drawn inspiration from DeepSeek’s strategy of delivering high-performance models despite financial and technological limitations.

While OpenAI’s ChatGPT Images 2.0, an AI tool that creates images from text prompts, delivers “exquisite and beautiful” outputs, SenseNova U1 costs ten times less, Lin noted.

“You may not need the top model in many cases when it can handle most tasks,” Lin told Verum. “There is still a gap between us and the international frontier models like OpenAI’s GPT Image 2 and (Gemini’s) Nano Banana, but our cost is much lower – it’s very efficient.”

With minimal overlap between U.S. and Chinese AI markets, the true competition may be closer to home.

ByteDance’s AI video model Seedance initially raised competitive concerns, Lin said. SenseTime has since integrated some of its capabilities into its short-video tool Seko, enabling it to combine Seedance’s background generation with its own audio functions.

More than a model race

Technology represents only half the challenge, as business models grow increasingly critical. OpenAI’s reported shortfall in revenue and user targets, according to The Wall Street Journal, highlights risks for both Chinese and American players, Jefferies noted in an April 28 report.

Pure-play AI model companies face a difficult equation: low customer loyalty, limited differentiation, a crowded market, and high training costs, Jefferies stated.

Large internet platforms, by contrast, possess stronger cash flow, access to user data, and established customer bases to sell AI applications to, the bank added.

In China, platform companies, including Alibaba, Tencent and ByteDance, can use their core businesses to subsidize AI development and enhance existing operations, said Vey-Sern Ling, a senior equity advisor at UBP.

“They are obviously in a better position than the standalone ones, which continue to be loss-making,” Ling added, while noting that heavy AI spending has weighed on profits even at larger players like Alibaba and Kuaishou.

To stand apart, SenseTime has combined large AI models, applications and infrastructure to improve service quality while lowering costs per use, Lin said. Many of its products target enterprise clients, who often demand higher-quality services, are willing to pay more and less likely to switch providers.

SenseTime narrowed its net loss by 58.6% last year and reported positive EBITDA in the second half for the first time since listing in 2021 – a trajectory investors will keep watching closely. Lin said the company’s AI costs are “manageable” and largely focused on making models more efficient.

Shares of SenseTime rose 2.5% at Wednesday’s open.

Price to win, or win to price

Pricing strategies vary across the sector.

Some companies, including DeepSeek, have recently slashed prices and offered discounts to attract users. Others such as Zhipu have raised them – signaling a push to commercialize advanced models.

The cloud units of Alibaba and Baidu have also lifted prices amid surging demand for AI computing power. ByteDance is planning a subscription service for certain features of its popular AI chatbot Doubao.

“Price wars might serve a strategic function in short-term promotions, but sustainability in the long run depends on differentiated value,” Lin said.

Analysts say some AI companies may be following a familiar playbook given China’s massive market: bleed cash to gain market share before raising prices later to monetize.

“They cannot keep subsidizing the usage of AI because it’s very expensive,” UBP’s Ling said.

“Either they can paint a picture of huge future usage and demand and help investors understand that near-term losses are acceptable. Or they have to start monetizing much sooner.”

Betting on the world beyond Washington

Facing U.S. export and investment restrictions, SenseTime has focused its international expansion on markets such as Southeast and North Asia, the Middle East, and more recently, Brazil.

The U.S.-Israeli war on Iran has caused short-term disruptions, impacting flights and interactions, but Lin said the company’s long-term strategy in the region is unchanged.

Cost-efficiency and practical utility matter as much in overseas markets.

“Oftentimes, the reason behind repeat buying is not about the technology being particularly advanced, but providing the best service at a competitive price,” Lin said.”,