With the pause button pressed on this year’s huge AI rally in Chinese tech stocks, clarity on global economic policies and concrete signs of core business improvement may be required to get things rolling again.
The Hang Seng Tech Index nearly slumped into a correction this week, with the latest set of earnings seen as lacking in major positive surprises. Only Alibaba Group Holding Ltd. is trading notably higher since its results, helped by its big plans for investment in artificial intelligence.
Market observers say there was likely some reassessment of China tech stocks after the steep surge. More details are awaited on the impact of US tariffs and Beijing’s stimulus measures, as well as signs of how AI will help profitability.
“Share prices have run ahead of earnings,” driven by macro optimism even as domestic consumption remains uneven, said Andy Wong, investment and ESG director for Asia Pacific at Solomons Group in Sydney. “Any renewed upside will likely depend on new catalysts such as sustained earnings growth and tangible monetization of AI.”
AI remains top of mind for investors after the rally unleashed by Deepseek’s breakthrough, with the Hang Seng Tech gauge still up 25% year to date.
Alibaba’s plan to invest $53 billion in AI over the next three years grabbed the biggest headlines this results season, along with companies’ growth figures in related segments such as cloud. The Chinese e-commerce leader has been releasing AI products at a frenetic pace this year, and on Thursday unveiled a new model in its Qwen series that the company says can process text, pictures, audio and video.
Tencent Holdings Ltd. failed to inspire with a measured plan to increase capital spending as it works with in-house and open-sourced AI models. Signs of trouble remain in the sector’s more traditional businesses as well, such as continued weakness in advertising at Baidu Inc. and challenges in Meituan’s delivery business.
The market had high expectations heading into results, as shown by the negative stock reactions despite most of China’s tech megacaps beating consensus estimates. JD.com Inc. has suffered the worst, with its stock down more than 8% since reporting, even though its quarterly sales growth was the best in almost three years.
A further rally in the tech sector “requires a stable or improving outlook of core businesses, and continuous positive developments in gen-AI adoption and application,” JPMorgan Chase & Co. analyst Alex Yao wrote in a March 16 note.
Yao adds, however, that improving multiples should continue to help tech stocks as investors raise their expectations. The Hang Seng Tech Index is trading at 17.6 times estimated forward earnings, below its three-year average of 19 times and the Nasdaq 100’s 24 times.
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Chinese tech earnings have gotten a lift from efforts to cut costs amid macro uncertainty and fierce competition. Now companies are “back into investment mode,” with AI the top priority, according to Gary Tan, a portfolio manager at Allspring Global Investments.
“The next catalysts for China tech stocks will be potential upside surprises to top-line growth from improving domestic demand and their ongoing foray into overseas markets,” Tan said. Still, “the nation’s economic recovery remains patchy and uneven with sharp divergence between sectors that receive government support and sectors that do not,” he added.
Top Tech News
- Microsoft Corp. has walked away from new data center projects in the US and Europe that would have amounted to a capacity of about 2 gigawatts of electricity, according to TD Cowen analysts, who attributed the pullback to an oversupply of the clusters of computers that power artificial intelligence.
- OpenAI is close to finalizing a $40 billion funding round led by SoftBank Group Corp. — with investors including Magnetar Capital, Coatue Management, Founders Fund and Altimeter Capital Management in talks to participate, according to people familiar with the matter.
- Meta Platforms Inc. is losing its senior-most business executive for the Asia-Pacific, an industry veteran who shepherded some of the social media company’s largest international markets over a decade-long tenure.
- President Donald Trump said he would consider lowering tariff rates imposed on China to secure Beijing’s support for a sale of the US operations of ByteDance Ltd.’s social video platform TikTok to an American company.
- Discord Inc., a social communications platform popular with video-game players and programmers, is working with Goldman Sachs Group Inc. and JPMorgan Chase & Co. on an initial public offering, according to people familiar with the matter.
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