CITIC Construction Investment: AI toys have become one of the best application scenarios, with multiple companies and products emerging

According to the Zhitong Finance APP, CITIC Construction Investment has released a research report stating that AI toys have a long payment cycle and high market growth rate, making them one of the best landing scenarios for large models currently. AI toys are not a one-time purchase; they can continuously charge users for the usage fees of large models. Moreover, the companionship scenario has a higher tolerance for the hallucination of large models, thus AI toys are one of the best landing scenarios for large models at present. It is expected that AI toys will likely capture some user demand from traditional children's toys, millet products, smart speakers, and AI virtual companionship applications.

CITIC Construction Investment's main viewpoints are as follows:

AI toys emerge at the right time—AI application tracking series

ByteDance's AI doll "Xianyanbao" leads a new round of AI toys going viral. Xianyanbao has a blue and white plush toy appearance, integrating Doubao large model technology internally, and performs excellently in dialogue interaction and emotional communication, with transfer prices on second-hand platforms reaching hundreds of yuan. Xianyanbao is a typical case of the rise of AI toys, and a number of AI toy startups have emerged both domestically and internationally, with new products like BubblePal exceeding sales of ten thousand this year.

ByteDance's AI doll "Xianyanbao": A new form of Doubao model landing

ByteDance's AI doll "Xianyanbao" stands out due to its unique appearance and AI capabilities. Xianyanbao is an emotional companionship doll developed internally by ByteDance, appearing as a blue and white, small hill-shaped plush toy, and integrating multiple AI technologies from the Volcano Engine, including Doubao large model, Button Professional Edition, voice recognition, and synthesis. Since this product is not sold externally and is produced in limited quantities, its transfer price on second-hand platforms can reach up to 500 yuan.

Xianyanbao features AI dialogue interaction capabilities and performs well in emotional communication. According to evaluations from media outlets such as Duozhiwang, 36Kr, and Z Finance, Xianyanbao can engage in bilingual dialogue with users, such as telling stories and reciting ancient poems; when users share their confusions with Xianyanbao, it also provides targeted suggestions, showing good emotional communication and companionship effects. It also has memory capabilities, accurately recalling the content of the previous two rounds of dialogue. However, it performs poorly in mathematical logic, unable to compare the sizes of the numbers 9.9 and 9.11.

Xianyanbao is embedded with an AI brain, integrating Doubao large model capabilities. This AI brain is called Magicbox, which calls the cloud-based Doubao large model and Button Professional Edition capabilities via Wi-Fi. It is a general-purpose AI hardware developed by a third-party company, Folotoy, integrating AI dialogue chips, microphones, and speakers, and is compact in size, allowing users to fit it inside various dolls to enhance their AI dialogue and companionship functions.

AI toys are on the rise, with recent small hits emerging

AI toys have a long payment cycle and high market growth rate, making them one of the best landing scenarios for large models currently. AI toys provide users with language and action interaction experiences, enhancing the companionship function of toys. From a technical perspective, there are still certain hallucination issues with large models, but the error tolerance rate in the AI toy scenario is relatively high, matching the current technical status of large models From the perspective of business model, AI toys are not a one-time transaction; they typically adopt a business model of one-time hardware fees plus software subscription fees, resulting in a longer user lifecycle and higher average transaction value.

From the perspective of market size, the toy market has entered a mature phase. According to NPD, the global market size in 2023 is USD 108.7 billion, with growth rates below 10% over the past five years. However, the AI companionship market, as an emerging sector, has a larger market space and higher growth rates. According to Ark Invest, the global AI companionship market is expected to reach USD 150 billion by 2030, with a compound annual growth rate exceeding 200% from 2024 to 2030.

AI toys target a wide range of users, meeting the needs of both children and adults.

For children: Compared to traditional toys, AI toys can provide not only emotional companionship but also extend to educational scenarios such as oral language practice and knowledge popularization, offering an immersive and personalized educational experience. Moreover, the continuous iteration and updating of teaching content can provide related companies with a long-term stable cash flow.

For adults: From the perspective of emotional value and spiritual consumption, AI toys offer rich emotional and social value. Compared to AI virtual companionship applications like Character AI and Talkie, AI toys provide unique tactile and physical attributes, resulting in higher companionship value. According to the "2023 Youth Consumption Research" published by "DT Business Observation," nearly half of the surveyed youth believe that good products or services can provide emotional value, and 41.6% of the surveyed youth indicated that they are spending more due to new hobbies developed this year. The high demand for spiritual consumption is also reflected in the booming consumption of IP products this year. From the perspective of practical value, AI toys can meet the demand for upgrading smart speakers, serving both music playback and interacting with smart home devices, becoming a new control entry point for smart homes.

In addition to ByteDance's prominent presence, a number of AI toy startups have emerged both domestically and internationally, with some products exceeding sales of 10,000 units this year.

Domestically, several high-ranking officials from major tech companies have chosen the AI toy sector for entrepreneurship. Among them, former Tmall Genie partner Li Yong, Meituan Vice President Bao Ta, and Microsoft DPS Global Solutions Innovation Department General Manager Guo Zhi have founded YueRan Innovation, Singularity Intelligence, and YiJiaYiBan, respectively. Internationally, both large companies like Tesla and Casio, as well as startups like Curio and Lovot, have achieved impressive results.

1) Domestic: Multiple startups have emerged.

YueRan Innovation has made rapid progress in product development, with its AI accessory BubblePal officially launched at the end of July, selling tens of thousands of units within three months. Founded in 2021, CEO Li Yong was previously a partner at Tmall Genie and CMO of iQIYI Smart. The core product BubblePal is designed to be worn on any toy, integrating large model capabilities to tell stories, answer questions, and play word games, while also supporting different IP personas to provide a more personalized voice interaction experience. Although BubblePal's voice interaction features are similar to Tmall Genie and Xiao Ai speakers, it offers a better companionship experience by expressing understanding of children's emotions during language interactions and communicating in language that is easy for children to understand In addition, companies such as Singularity Intelligence, Yijia Yiban, Beipei Technology, and Saner Cat Technology are all researching AI toys, with a batch of new products expected to be launched next year.

2) Overseas: Some products received positive user feedback and sold out upon launch.

Among the leading companies, Tesla recently launched a mini version (1:10 scale replica) of the Optimus Gen2 humanoid robot, priced at $40, which sold out within 24 hours of going online, with current resale prices on platforms like eBay reaching up to $1,300. The AI pet Moflin, jointly launched by Casio and startup Vanguard Industries, officially went on sale this November, priced at nearly 3,000 yuan in RMB, and also sold out during the pre-sale period. This product features a furry appearance, emotional feedback, and gradually develops a strong emotional connection with users.

Among startup companies, the Japanese company GROOVEX launched the home companion robot LOVOT back in 2018, equipped with high-precision devices such as light sensors, a 360-degree hemispherical camera, and LCD screens that simulate eyes, with each robot having a unique personality to provide users with nurturing gameplay. The product is priced at 59,800 yuan, and as of the end of 2023, sales in Japan exceeded 10,000 units. It officially entered China in June 2023 and has opened retail stores in Shanghai. Silicon Valley startup Curio has also developed the AI plush toy Grok, which integrates GPT series models to provide users with language interaction and emotional companionship. The toy's specifications are similar to ByteDance's prominent bag, including a toy set, a built-in speaker, a microphone, and Wi-Fi hardware, priced at $99.

Risk Warning: Risks include insufficient copyright protection, unclear division of intellectual property, decline in IP influence, risks of interruption in collaboration with IP or celebrities, shifts in public aesthetic preferences, intensified competition, low user willingness to pay, difficulty in changing consumption habits, governance risks of related companies, underperformance of content upon launch, slower-than-expected development of generative AI technology, challenges in product R&D, delays in product launches, rising marketing acquisition costs, talent attrition risks, increasing labor costs, regulatory risks, and underperformance in commercialization capabilities