Chinese AI Stocks Surge Post-Xi Visit: Alibaba and Baidu Lead the Charge

The visit of Chinese President Xi Jinping to the Shanghai Foundation Model Innovation Center on July 4, 2024, marked a pivotal moment for China’s artificial intelligence (AI) sector. This high-profile inspection underscored the Communist Party’s commitment to positioning AI as a “strategic technology leading the new round of sci-tech revolution,” as Xi declared. The event, occurring just days after a dedicated AI policy review session by China’s leadership, sent a clear signal to investors: AI is now a national priority.

The Strategic Significance of the Visit

The Shanghai incubator, established in September 2023, is a hub for over 100 enterprises and institutions, including the Shanghai Jiao Tong University and the Shanghai Artificial Intelligence Laboratory. It represents China’s coordinated effort to build an end-to-end AI ecosystem—spanning chip design, algorithm development, and cross-industry applications. Xi’s hands-on engagement, including trying smart glasses and discussing next-generation AI agents with young developers, highlighted the Party’s focus on fostering youth-driven innovation.

The visit also coincided with Xi’s directive for Shanghai to become a global leader in AI governance and development. This aligns with broader policy goals to reduce reliance on U.S. technology and establish China as a leader in ethical AI frameworks. The message to investors is unambiguous: Beijing is doubling down on AI.

Alibaba’s AI Ambition: A Catalyst for Growth

Alibaba (BABA) has emerged as a central player in China’s AI race, leveraging its vast resources and user base. The company has pledged RMB 380 billion (USD $52.5 billion) over three years to AI and cloud infrastructure—exceeding its total spending over the previous decade. This investment has fueled breakthroughs like the 2.5-VL-72B and QwQ-32B models, which rival U.S. competitors like OpenAI.

The results are reflected in its financials. Alibaba’s cloud revenue rose 11% year-on-year (YoY) in Q3 2024, driven by AI adoption, while its e-commerce segment benefited from government stimulus programs. By early 2025, shares in Hong Kong had soared to record highs, with institutional investors like Michael Burry and David Tepper increasing their stakes.

Baidu’s Undervalued AI Play: Bidding for Dominance

Baidu (BIDU), often dubbed the “Google of China,” has positioned itself as a pure-play AI leader. Its ERNIE Bot, serving over 230 million users, processes 1.5 billion daily API calls, while its autonomous driving platform Apollo has completed 8 million rides by late 2024. CEO Robin Li’s vision of “explosive growth” in AI applications is now being tested.

Despite macroeconomic headwinds—such as a 4% decline in online advertising revenue—Baidu’s AI cloud business grew 11% YoY, contributing 11% of total cloud sales. Analysts project a 30% upside to a $113.28 price target, citing its undervalued multiples (7x forward earnings) and $20 billion in cash reserves.

Risks and Challenges Ahead

While the momentum is undeniable, Chinese AI stocks face significant hurdles:

1. U.S. Trade Restrictions: Export controls on advanced chips (e.g., NVIDIA’s H100) threaten AI development timelines.
2. Monetization Uncertainties: Open-source models like Alibaba’s Qwen and Baidu’s ERNIE lack clear revenue streams, raising questions about long-term profitability.
3. Domestic Consumption Slump: Weak demand in China’s e-commerce sector could dampen Alibaba’s growth, while Baidu’s reliance on search advertising leaves it vulnerable to broader economic slowdowns.

Conclusion: Riding the AI Wave, but Navigating Stormy Seas

Chinese AI stocks like Alibaba and Baidu are undeniably benefiting from Xi’s strategic push and record-breaking investments. Alibaba’s $52.5 billion commitment to AI and Baidu’s 20% R&D allocation have positioned them to compete globally. However, investors must weigh these tailwinds against geopolitical risks and execution challenges.

The Shanghai incubator visit was more than a photo op—it was a clarion call for China’s AI ecosystem. For investors, the question is whether the Party’s backing can translate into sustained growth. With $380 billion in bets on AI and a government willing to prioritize innovation, the answer may lean toward optimism—provided U.S.-China tensions don’t derail the race.

As the saying goes: In China’s tech sector, political tailwinds can make even the steepest mountains climbable. But the view from the summit will depend on navigating the storms below.