The first phase of the AI boom made it seem like AI was largely a software business․
The next phase of AI might look much closer to an industrial revolution․
Increasingly‚ competition between the US and China is taking place in physical intelligence‚ which is the ability of systems to sense‚ reason and act in the physical world․ Physical intelligence‚ says Soumitra Dutta‚ an AI scholar and former dean of Oxford Saïd Business School‚ will influence the technology balance of power between the two countries․
According to Dutta‚ “The next era of AI is about turning perception into reasoning and imagination into action․”
The shift highlights very different strengths of the American and Chinese systems.
The United States leads the world in a variety of areas related to frontier AI‚ large models‚ and VC formation. A lot of it has to do with the depth of its ecosystem, with its top-tier universities‚ national laboratories‚ hyperscale cloud providers‚ AI startups‚ and private venture capital․
The next phase of AI is not just about better models—it is about integrating computation with the physical world. That requires ecosystems that combine science, engineering, capital, and institutions at scale. The United States is uniquely positioned to do this,” says Soumitra Dutta.
That ecosystem advantage may be decisive‚ as physical AI is much more capital-intensive than consumer AI software․ Physical AI requires wide-ranging investment in sensors‚ hardware‚ manufacturing infrastructure and simulation environments over long periods – something many investors avoid․
Yet China may possess the single most important advantage in deployment.
China accounts for more than half of annual industrial robot installations globally‚ and is deploying AI into manufacturing firms‚ logistics networks‚ and industrial supply chains․ China’s advantage is real-world deployment at scale. The faster physical AI systems move from labs to factories‚ the more data and deployment experience China will gain․
That creates a very different dynamic from the first phase of AI.
The battle is less about building faster or smarter models than about building intelligence into industrial systems‚ physical infrastructure‚ and operations at national scale.
“The United States leads in foundational innovation and ecosystem depth‚ while China excels in scale and rapid deployment․ The outcome of the next phase of AI will depend on how these different strengths evolve‚ and how effectively each country connects them into a coherent strategy,” says Dutta.
