This article first appeared on GuruFocus.
Investors appear to be becoming more interested in China’s artificial intelligence trade, with attention shifting to companies that have already brought products to market and have earnings momentum to support higher valuations. As the AI rally sparked by DeepSeek enters its second year, stocks related to consumer applications are coming to the forefront. Kuaishou Technology (KUASF) is up 24% so far this year as the company’s AI video generation tool, Kling, gains traction with users around the world. Meanwhile, Alibaba Health Information Technology rose 33%, helped by interest in its AI products, including a newly launched chatbot to help doctors diagnose patients. Both companies are currently among the top gainers in Hong Kong’s tech sector, reflecting investors’ appetite for exposure to AI that could lead to short-term results.
Market participants increasingly believe the next stage of China’s AI story will unfold at the application layer, after early gains were concentrated in back-end technology providers such as Semiconductor Manufacturing International. Portfolio managers have suggested that AI-driven productivity gains across internet services, healthcare and software could support some companies’ earnings growth this year. This view is reflected in estimates, with Alibaba Health’s consensus earnings forecast up 24% and Kuaishou’s 7% over the past six months, while expectations for the broader Hang Seng Tech Index have fallen 16% due to pricing pressures and increased AI spending on large internet platforms.
Since Deep Seek’s R1 model debut a year ago, supportive policy signals from the Chinese government and a spate of new listings have fueled investor enthusiasm. The recent debut in Hong Kong by AI developers Minimax Group and Knowledge Atlas Technology (also known as Zhipu) has garnered strong market interest, highlighting hopes that low-cost open source models are accelerating China’s AI ecosystem. Early-stage AI investments have traditionally weighed on corporate profits, but investors are increasingly hoping that profits will improve as efficiency increases, especially among profitable, application-focused companies that trade at more conservative valuation multiples than some of the hottest chipmakers.
