In the 2025 consumer market, AI toys are reshaping the industry landscape at an astonishing pace. They have become a new consumption hotspot across all age groups and are ushering in a “golden era” for the AI toy sector. Products that satisfy children’s dual needs for education and entertainment, emotional companion collectibles favored by Generation Z, and memory-assistant devices serving older adults—powered by multimodal interaction and affective computing—are breaking the traditional boundaries of toy usage and laying a solid product and technology foundation for this new era.

Since the start of this year, Securities Daily reporters have frequently encountered AI toys in supermarkets, retail outlets and at industry conferences. These devices, resembling “tech sprites,” not only engage children in lively conversations and tell stories vividly, but also possess powerful memory capabilities—accurately remembering a speaker’s voice and preferences and transforming into thoughtful intelligent companions. Today, they have firmly claimed premium shelf space in many toy stores and become the undisputed ‘new favorites’ among children.

AI toys not only provide unprecedented novelty for users but also create fresh development opportunities for the toy industry. According to consultancy IMARC, the global AI toy market is projected to grow from USD 18.1 billion in 2024 to USD 60 billion by 2033, representing a compound annual growth rate of roughly 14% from 2024 to 2033. For a sector traditionally viewed as mature, this paints a promising ‘blue ocean.’

Market Boom

All-Age Appeal Fuels a New Wave of Consumption
For parents born in the mid-1980s and 1990s, AI toys have rightly earned the reputation of ‘screen-free educational wonders’—they can practice English with children in an engaging way, set puzzles and challenges that encourage logical reasoning, and respond quickly to children's questions. These toys, which combine technological sophistication with edutainment attributes, help children acquire knowledge in a relaxed atmosphere while quietly opening parents’ wallets. Data from JD.com corroborates this trend: in the first half of 2025, sales of AI toy products surged sixfold quarter-on-quarter, with year-on-year growth exceeding 200%, demonstrating explosive market momentum.

The audience for AI toys is not limited to children; it also covers today's main consumption cohort—Generation Z. Office worker Zhang Qingyu (pseudonym) carefully selected an AI toy priced at RMB 499 on an e‑commerce platform. Although pricier than ordinary toys, she felt it represented excellent value. “It feels soft and comfortable to the touch and has a pair of lively, playful eyes as if it could really speak. Sometimes when work stress builds up and I don’t want to talk to people but feel lonely, I’ll chat with it. It tells all kinds of funny jokes to cheer me up; it feels like having a ‘soulmate’ who understands me,” she said.

This ‘warm’ experience allows AI toys to transcend traditional entertainment boundaries. Psychologist Zhang Rongxin told Securities Daily that, under the deep penetration of digital technologies, AI toys not only provide emotional solace for young people but also serve as important carriers of emotional companionship, health management and cognitive maintenance for middle-aged and elderly groups. Their value lies not only in technological innovation but also in human-centered design that reshapes intergenerational relationships—creating solutions that deeply integrate technology and humanity, and bringing more warmth and care into people’s lives.

At present, AI toys have expanded their market positioning from children to all-age groups, and e-commerce platforms have become important sales channels. During this year’s “618” shopping festival, one AI toy new release sold out rapidly after launch.

The product’s success stemmed from its precise capture of Generation Z's companionship needs. It uses multi-affective models to sensitively perceive emotional fluctuations in a user’s tone, employs a “delayed response that simulates human thinking rhythm” to avoid mechanical impressions, and can remember key information mentioned by users to proactively respond in subsequent interactions.

Hong Tao, vice chairman of the China Consumer Economics Society and director of the Business Economics Research Institute at Beijing Technology and Business University, told Securities Daily that current AI toy development focuses on core scenarios such as child education and emotional companionship, and is advancing the development of high cost‑performance products. Examples include tactile-feedback interactive toys designed for very young children so that they can experience the charm of technology through touch, or companion robots for older adults with health-monitoring functions that keep constant watch over their physical well-being and quickly capture niche markets.

“AI toys achieve more realistic interactive experiences through advanced technologies such as voice recognition and emotional computing,” Hong said. “Although R&D for AI toys has high technical thresholds, once produced at scale the cost advantages become significant, and prospects are very promising.”

Capital Deployment

Multiple Forces Collaborate to Build an Industry Ecosystem
The rise of AI toys relies on improving intelligence modules and falling application costs as technology matures, is propelled by robust market demand, and is also heavily driven by capital. Since the sector emerged in 2024, the number of related enterprises has surged: Tianyancha data show toy-related company registrations climbed year by year over the past five years and peaked in 2024. Analysts at the China Business Industry Research Institute predict China’s AI toy market will expand to RMB 29 billion in 2025 and reach RMB 85 billion by 2030.

On the capital side, both deal volumes and financing amounts in the AI toy space have grown substantially this year, with nearly a hundred investment institutions entering the market and many startups successfully closing multiple financing rounds.

Yan Xianbiao, CTO of Shenzhen Liangxu HuanYou Technology Co., Ltd., told reporters that domestic investment and financing activity in the AI toy field has become increasingly active since last year, and several leading companies secured large financings this year—greatly encouraging entrepreneurs to deepen their efforts. Unlike traditional toys, AI toys place greater emphasis on experiential content and scenario development, offering consumers emotional value and continuous services.

Corporate deployment shows marked cross-industry trends. For example, publicly listed company Outfit7 launched an AI emotional companion robot in late December 2024, entering the AI companionship market from mobile applications and gaming. Its 2025 interim report indicates the company is building an integrated “hardware + content + service” ecosystem based on its proprietary emotional companion model, cutting-edge MoE (Mixture of Experts) architecture, embedded software and intelligent hardware. At present, Outfit7’s AI companion robot primarily generates revenue through hardware sales.

Zhang Cuixia, chief investment advisor at Jufeng Investment, told Securities Daily that, to seize market opportunities, companies beyond device manufacturers and IP operators—including listed firms engaged in localized AI processing and multimodal interaction technology—have announced projects to apply their products to AI toys. Upstream and downstream firms are pushing toward deeper technology, product IPization and emotionalization, industry collaboration and global market expansion to further enhance product appeal.

International markets are also active. Recently, Bondu, an AI toy startup based in San Francisco, announced the completion of a USD 5.3 million seed round.

Behind the capital frenzy lies a deep bet on the commercialization of “emotional value.” Traditional toy industry gross margins typically hover between 20% and 30%, but AI toys have achieved value upgrades through technological empowerment; some mid- to high-end AI toy manufacturers report gross margins exceeding 70%.

On industry competition and supply chain dynamics, the Qianzhan Industry Research Institute’s report “China Intelligent Toy Industry Market Outlook and Investment Strategy” states that the domestic AI toy track currently has relatively few participants, low industry concentration and a diversified competitive landscape, with technology iteration and IP competition dominating the market.

Chen Xiaohua, executive director of the Education and Science & Technology Research Institute at the China Mobile Communications Association, told Securities Daily that while the traditional toy market—with its mature supply chain and classic IPs—still holds major market share, it is accelerating its shift toward intelligence. For example, Alpha Group and other firms are integrating AI technology into their own IP products. AI toy companies are speeding up product R&D and market expansion, moving beyond basic entertainment functions to emphasize emotional companionship and personalized growth advising, and exploring viable “hardware + subscription” service models to extend product lifecycle value.

Facing Challenges

Breaking Homogeneity to Find Upgrade Paths
AI toys have expanded into multiple product categories—some focusing on IP operations and emotional services, others precisely targeting educational scenarios. This diversified exploration is driving the industry toward higher value‑added segments. Nevertheless, the sector also faces a homogeneity dilemma: product designs are converging, many AI features depend on the same service providers, and interaction modalities often lack natural fluidity.

Technology is the core foundation for AI toys, and competitiveness largely depends on the ability to achieve human‑like natural conversation and accurately interpret language and emotions—capabilities that heavily rely on large language models and interaction technologies. Securities Daily’s reporting found that although most AI toys claim to be equipped with advanced large models capable of fluent dialogue, actual question-and-answer interactions are often formulaic, lack emotional warmth, and generally fall short in continuous learning and personalization capabilities.

Huadong, an AI engineer at Dong Qipeng Electronics Technology Co., Ltd., told reporters that connecting traditional toys to large AI models is just a baseline. On the software side, products need visual and video recognition, voiceprint recognition, long-term memory functions (able to remember users’ statements) and a repertoire of expressions for feedback; on the hardware side, they require eye-contact interactions, radar perception, greeting mechanisms, touch points and tactile feedback. All these AI features are crucial. Future competition will not be just a battle of hardware versus software but a contest in social AI—where AI toys integrate speech recognition, computer vision and haptic feedback to achieve environmental awareness and natural interaction.

Beyond technological hurdles, AI toys also face a trust crisis concerning information security and privacy protection. These toys often collect children’s voiceprints, facial images, behavior trajectories, and even household environmental data through cameras, microphones and other sensors. The covert collection and potential misuse of such data urgently require strict privacy safeguards. Moreover, excessive reliance on AI toys by minors may impair social skills and emotional cognition development—reducing real interpersonal interaction, creating difficulties adapting to delayed human feedback, or being misled by anthropomorphized emotional expressions.

“Solving the homogeneity problem in AI toys hinges on innovation,” said Fu Yifu, a special researcher at Suzhou Commercial Bank. He suggested that companies increase R&D investment, deeply explore latent user needs and develop products with unique functions and characteristics—such as AI toys tailored to specific age groups or scenarios. At the same time, attention must be paid to user‑experience design to improve ease of use and stability, reducing lag and malfunctions. Strengthening brand building to craft distinct brand images and values is also necessary; brand differentiation can enhance a product’s core competitiveness. In short, AI toys’ core competitive advantages should concentrate on technological innovation, content innovation, user experience and brand value to meet consumer demand for high‑quality, personalized products.

The rise of AI toys is a model of deep integration between technology and the humanities and a natural outcome of industrial upgrading. From explosive market growth and all‑age user coverage to capital market enthusiasm and continuous technological breakthroughs, AI toys are reshaping the toy industry landscape with unstoppable momentum and ushering in the industry’s “golden era.” They are not only a new ‘blue ocean’ for the toy sector but also a social pressure‑release valve for emotional needs. This golden era will make AI toys a bridge connecting technology and humanity, commerce and emotions, and will bring more surprises to people’s lives.

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