Bernstein Lifts China Internet Stock Targets on AI Momentum

Bernstein, a leading global investment research firm, has recently upgraded its target prices for several Chinese internet stocks, citing the growing momentum in artificial intelligence (AI) as a key driver. The firm's bullish stance on the sector is supported by attractive valuations, growth opportunities, and the increasing adoption of AI technologies by major Chinese tech companies.



AI Adoption Gains Traction in China
China's digital economy has witnessed remarkable growth over the past three decades, with the internet sector now facing mounting pressure to find fresh growth drivers. AI has emerged as a transformative force, with Chinese consumers actively harnessing AI for knowledge queries, presentation design, and conversational interfaces. Official statistics indicate that over 250 million users engage with generative AI tools, underscoring AI's seamless permeation into societal rhythms.

Market forces and preferences remain the ultimate arbiters of technological viability. Within the current AI acceleration phase, China maintains stride with global pioneers, leading in top AI research publications and patent authorizations globally. The country hosts the world's second-largest cluster of AI enterprises, reflecting its robust foundation for the recent proliferation of breakthrough AI applications.

Chinese Tech Giants Embrace AI
Leading Chinese tech companies have invested heavily in AI large models, a key technology that can recognize and generate texts, among other tasks. According to a report by the China Academy of Information and Communications Technology, China accounted for 36% of the 1,328 AI large models created globally, with the United States leading at 44%.

Tencent Holdings Ltd (HK:0700), Alibaba Group Holding Ltd (HK:9988), and Baidu Inc (HK:9888) have all experienced notable gains, driven by speculation surrounding advancements from AI startup DeepSeek. DeepSeek's recent release of its open-source reasoning model, DeepSeek-R1, has been recognized for rivaling OpenAI's ChatGPT in several performance benchmarks. This achievement highlights the challenges of U.S. export curbs in hindering China's AI progress and signals the growing potential of Chinese startups to lead in the AI race.

Bernstein's Top Picks in the Chinese Internet Sector
Bernstein has identified several Chinese internet stocks as top picks, citing their attractive valuations and growth opportunities. These companies include:

1. Tencent Holdings Ltd (HK:0700): Trading at 12 times 2026 estimated earnings, Tencent offers an attractive entry point despite recent pressures from gaming comparisons and international spending. Bernstein expects Tencent to benefit from AI adoption and integration, positioning the company to expand its global competitive edge.
2. Meituan (HK:3690): Meituan's valuation is around 13-14 times 2025 estimated earnings, which is considered attractive given its growth opportunities. Bernstein expects Meituan to benefit from AI adoption and integration, positioning the company to expand its global competitive edge.
3. NetEase (NASDAQ:NTES): NetEase has momentum following positive Q3 earnings and promising gaming announcements. Bernstein points to NetEase's attractive valuation and growth opportunities, making it a top pick in the Chinese internet sector.
4. PDD Holdings (HK:1888): PDD's valuation is at 9 times 2025 earnings, reflecting reduced investor expectations. Bernstein believes that PDD's valuation provides an asymmetric opportunity, despite macroeconomic uncertainty, as the company focuses on profitability and growth.

Bernstein's bullish stance on the Chinese internet sector reflects the firm's optimism about the potential of these companies to capitalize on AI adoption and consumption recovery, despite the challenges posed by macroeconomic uncertainties and geopolitical tensions. The growing AI capabilities of China are expected to have a lasting impact on global tech markets, with key metrics and balance sheets set to benefit as AI technology continues to shape the industry.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking.