U.S. investment bank Goldman Sachs said the rally in Chinese AI shares can go further, as company valuations still lag those of their U.S. counterparts.
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BABA shares (NYSE:BABA) dropped after the recent earnings release, but are up 86% year-to-date. The company could see a rebound if Goldman Sachs is right about valuations.
The AI-driven stock rally in China is far from a bubble, with the nation’s technology firms still able to expand valuations and earnings, according to Goldman Sachs’ chief China equity strategist.
The country’s approach to investing capital in applications, rather than in computing power, can give investors “comfort that its AI monetization capability could be better, at least in the short term”, Kinger Lau said.
“The key question is how companies monetise the demand for AI-related products,” he said. “Relative to the US, Chinese companies focused on applications are still trading at much more reasonable valuations.”
Optimism around China’s potential as an AI superpower has intensified since the DeepSeek tool introduced efficient, low-cost models. That led to a resurgence of foreign investor money into Chinese stocks.
“China’s AI stock boom is far from a bubble from a valuation perspective,” Lau added. The top 10 tech companies in China have a combined market capitalisation of $2.5 trillion, while their US counterparts have a combined market capitalisation of $25 trillion. The U.S. firms currently represent around 40% of the S&P 500 index’s market cap, while their Chinese peers make up only 15% of the broader group.
“The AI story will play out in China,” Lau said. “The AI investment cycle, which is around 18 months behind the US, has more room to grow and translate into earnings and revenue growth”.
Concerns have also been growing that U.S. companies have spent too much on data centres, which could hit their value. Nvidia also showed the risk of competition, with a 2.59% decline on news that Google may be catching up to them in the chip stakes.
