This article first appeared on GuruFocus.
Investors appear to be rotating deeper into China’s artificial intelligence trade, with attention shifting toward companies that already have products in market and earnings momentum to support higher valuations. As the AI rally sparked by DeepSeek moves into its second year, stocks tied to consumer-facing applications have moved to the forefront. Kuaishou Technology (KUASF) has risen 24% so far this year as its AI video-generation tool Kling gains traction with global users, while Alibaba Health Information Technology has advanced 33%, supported by interest in its AI offerings, including a newly launched chatbot designed to help doctors diagnose patients. Both names now sit among the top gainers in Hong Kong’s tech space, reflecting investor appetite for AI exposure that could translate into near-term financial results.
Market participants increasingly see the next phase of China’s AI story playing out at the application layer, after early gains were concentrated in back-end technology providers such as Semiconductor Manufacturing International Corp. Portfolio managers suggest that AI-driven productivity gains across internet services, healthcare, and software could support earnings beats for select companies this year. That view is reflected in estimates, with consensus earnings forecasts for Alibaba Health rising 24% over the past six months and those for Kuaishou up 7%, even as forecasts for the broader Hang Seng Tech Index have fallen 16% amid pricing pressure and elevated AI spending among larger internet platforms.
Supportive policy signals from Beijing since DeepSeek’s R1 model debut a year ago, combined with a wave of new listings, have added to investor enthusiasm. Recent Hong Kong debuts by AI developers Minimax Group and Knowledge Atlas Technology, also known as Zhipu, have drawn strong market interest, highlighting expectations that lower-cost, open-source models are accelerating China’s AI ecosystem. While early-stage AI investment previously weighed on corporate profits, investors increasingly expect earnings improvement as efficiencies emerge, particularly among profitable application-focused companies that trade at more modest valuation multiples than some overheated chipmakers.