On Tuesday, shares of SenseTime saw a decline of up to 9.7% following an accusation from Grizzly Research that the Chinese AI business had pumped up its earnings. SenseTime stated that it was of the opinion that Grizzly Research's report was "devoid of any substance and comprised of baseless allegations and mistaken inferences and interpretations". Recognized for its computer vision abilities which are instrumental in facial recognition software, SenseTime had once been seen as one of China's most promising AI firms.
SenseTime shares experienced a sharp downturn on Tuesday, dropping by as much as 9.7%, following accusations from U.S. short seller Grizzly Research that the Chinese AI firm had been inflating its revenue. The Hong Kong-listed stock managed to recoup some of its losses by the end of the day, though still for a net decrease of 4.86%. As detailed in their report, Grizzly Research pointed to two court cases in China that allege SenseTime engaged in a tactic known as "revenue round-tripping," where they provided funds to clients that were then used to purchase goods from SenseTime, goods which may never have been delivered.
SenseTime stated in a declaration to the Hong Kong Stock Exchange that it is currently studying the claims and is deliberating on what the best course of action would be to protect the interests of all shareholders. The Chinese corporation expressed their view that the report created by Grizzly Research is groundless, full of erroneous allegations and incorrect judgments. SenseTime further pointed out that the report is a reflection of the researcher's lack of knowledge on SenseTime's business model and reporting structure, as well as a deficiency in his careful scrutiny of the documents made public by the organization. Lastly, SenseTime declared that no contact was made by Grizzly Research to verify information.
Once seen as one of China's most innovative AI companies, SenseTime is recognized for its computer vision technology powering facial recognition software. However, last year it was put on the US Entity List, due to the government's assertions that it was linked to human rights violations in Xinjiang. SenseTime publicly stated that it did not have any presence in the region and proposed an IPO in Hong Kong in 2021, but the listing was postponed after the company was listed with the Chinese Military-Industrial Complex Companies list. When the company finally did list shares in December, the closing price on Tuesday was 64% lower than the IPO price. Grizzly Research noted that due to the US blacklisting, the company had a severely limited target market with no possibility of improvement, and neither did their software have a competitive moat. They concluded that SenseTime operates a non-remunerative facial recognition software business, as well as AI research projects with minimal chances of substantial future profits.
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