"AI narrative will be played out in China! Goldman Sachs bullish on Chinese AI stocks: the secret lies in 'applications' with another 30% potential growth ahead"

Goldman Sachs' chief Chinese stock strategist Liu Jingjin said that the market rise led by the AI boom in China is far from being a bubble, as Chinese tech companies still have room to increase valuation and profits by focusing on AI applications. In an interview, Liu Jingjin said that unlike the US focus on computing power, China is investing more capital in AI applications, which gives investors "reason to believe that at least in the short term, the commercialization of AI in China may be stronger." He emphasized, "The key issue is how companies can translate the demand for AI-related products into actual earnings. Compared to the US, Chinese companies focusing on applications still have more reasonable valuations." At a time when concerns about a global AI bubble are growing, with stock prices soaring and massive investments seeming to be detached from fundamentals, the market's optimism about China's emergence as an AI powerhouse continues to rise with the launch of efficient and low-cost models by startups like DeepSeek and the release of new AI tools by tech giants. "From a valuation perspective, the rise of Chinese AI stocks has not formed a bubble," Liu Jingjin pointed out. The total market value of the top ten Chinese tech companies is $2.5 trillion, while the US counterparts reach $25 trillion, representing a tenfold difference. Additionally, US tech giants account for about 40% of the total market value of the S&P 500 index, while Chinese tech giants make up only around 15% of major indices. "The AI story will unfold in China," he said, "China's AI investment cycle is about 18 months behind the US, with further room for growth and potential for profit and revenue growth." Goldman Sachs research shows that the AI field is also a key direction in China's latest five-year plan - the country's main roadmap for economic and social development has achieved 90% of its development goals in the past five planning periods. Liu Jingjin predicts, "The bull market trend in Chinese stocks will continue, but the pace of increase may slow down as next year's drivers shift from valuation expansion to profit recovery." The US investment bank expects Chinese companies' earnings growth to reach 12%-13% next year, significantly accelerating from the expected 2%-3% this year. Goldman also stated that after the MSCI China Index achieved a 48% PE ratio increase from its low point at the end of 2022, the future revaluation magnitude may slow to around 5%-10%. The bank also predicts that Chinese stocks are expected to rise further by 30% by 2027. Liu Jingjin believes that profit growth will benefit from AI investments, China's overall GDP growth rate, anti-"involution" policies, and the global expansion of Chinese enterprises. "Chinese companies are actively expanding their global business, with overseas income accounting for about 15%, compared to 30% for US companies, indicating significant room for market share growth in the future." He added that continued inflow of funds from domestic and foreign investors will support the continuation of the bull market. Net inflows of funds from the mainland to Hong Kong hit a historical high of $130 billion this year, and are expected to reach a new high next year. Retail funds will continue to shift from the real estate market to diversified assets, while institutional funds are also responding to increased domestic equity allocations. "Global investors with low sensitivity to political or geopolitical tensions are increasingly willing to explore investment opportunities in the Chinese market, recognizing the strong growth potential of the Chinese market, especially in the technology and AI sectors," Liu said. While political narratives have dampened US investors' interest in Chinese assets, Goldman's clients from emerging markets such as Mexico, Chile, and the Middle East are actively positioning themselves in Chinese assets, viewing the Chinese tech industry as a key area for long-term growth and diversification.