With China’s DeepSeek AI model rocking the U.S. tech sector, some tech-heavy aggressive investors may wish to diversify into the Chinese market. Undoubtedly, Chinese internet stocks have been under serious pressure for many years now.

While many big critics may still view Chinese stocks as uninvestable, I still think they’re worth a look, given China is shaping up to be a serious rival to the U.S. in this phase of the AI boom, with lower-cost models arising that stand to challenge the likes of the very best, priciest models trained on the latest and greatest graphics-processing units (GPUs). Indeed, the AI race is on as China jumps onto the scene, with the likes of Baidu (NASDAQ:BIDU), Alibaba (NASDAQ:BABA), and other Chinese tech firms rising on what was an awful day for the tech-heavy Nasdaq 100, which sank 4% on the day.

Whether or not China is a fast-rising AI superpower that can keep the U.S. tech titans on their toes remains the big question. Either way, I think it’s only prudent to consider the potential of underrated Chinese AI players and their role in the AI race as it goes global. Of course, betting on Chinese stocks comes with its own share of added risks.

However, with elevated relative valuations of U.S. tech companies, perhaps the geopolitical risks of investing in Chinese companies are partially offset by their relatively attractive multiples. Either way, Dr. Michael Burry, the genius investor behind The Big Short, is willing to go long on the big Chinese internet stocks—something I find to be notable as investors consider revisiting the Chinese internet names after shunning them for a period of time.

In this piece, we’ll compare two Chinese tech ETFs for investors interested in adding to their exposure:

Invesco China Technology ETF (CQQQ)

Invesco China Technology ETF (NYSEARCA:CQQQ) is a fantastic low-cost ETF solution for investors looking to gain access to China’s top internet plays. The CQQQ boasts a 0.65% total expense ratio, which is pretty standard for a China-specific ETF. Underneath the hood, the fund holds a great deal of Hong Kong-traded shares.

With no single holding comprising more than 10% of the fund and some top internet giants, like Baidu (NASDAQ:BIDU) and PDD Holdings (NASDAQ:PDD) making the top-five list, investors seeking a well-diversified way to play China’s AI strengths, I think, could do well with the name over the long haul. Indeed, one of the major pluses of the CQQQ is how well diversified it is across tech sub-industries and the impressive depth of exposure you’ll get.

Undoubtedly, many of the firms in the CQQQ are incredibly innovative, with the capacity to deliver on AI breakthroughs comparable to that of DeepSeek. In any case, with China’s economy in a tough spot, investors shouldn’t expect an overnight surge to happen. The CQQQ ETF is very volatile, with shares still down more than 62% from their 2021 all-time highs. 

KraneShares CSI China Internet ETF (KWEB)

The KraneShares CSI China Internet ETF (NYSEARCA:KWEB) follows the CSI Overseas China Internet Index, which is more heavily focused on the internet (software) names. Perhaps the most striking difference is that the KWEB has a much larger stake in the internet giant Alibaba, which comprises 9.4% of the fund. Though less diversified than the CQQQ, I do view the KWEB as a potentially higher-upside bet for investors looking to play China’s rise in the AI boom.

Like the CQQQ, shares of the KWEB are hurting, still down around 70% from 2021 all-time peak levels. With a 0.7% total annual fund operating expense, the KWEB is slightly pricer than the CQQQ, but, in my view, I view it as the better (though perhaps not necessarily safer) bet for those who want to play China’s version of the so-called Magnificent Seven.

As always, be ready for extreme volatility, with the KWEB boasting a 1.44 beta, higher than the 1.21 commanded by the CQQQ. In short, if you want to bet on China’s undervalued tech stars, you’ll have to pay the price in the form of a higher expense ratio and heftier volatility.

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