Sentiment Shifts for Chinese Stocks: Wall Street Turns from 'Helpless' to 'Opportunity-Driven Bullish'

As Chinese internet and AI-related stocks posted a strong rebound in July, overseas investors' sentiment toward Chinese stocks has undergone a clear shift. The sense of 'helplessness' that pervaded markets in late June has rapidly dissipated, with capital turning toward 'opportunity-driven bullishness' and re-evaluating the valuations and fundamental execution capabilities of major Chinese tech companies.

Alex Liu, an analyst at Bank of America (BAC-US), noted in a recent market feedback report that the three core factors influencing Chinese internet stocks have gradually become clearer: the inevitable commoditization trend of AI large models, the marginal easing of competitive pressure from ByteDance in local life and e-commerce, and persistently weak consumer demand and summer travel activity.

AI Model Commoditization: Application Layer Becomes the Deciding Factor

Competition in China's large AI model market is intensifying. As computing power costs rise and price wars escalate, the space for generating economic value solely from the models themselves is being compressed. The market is increasingly reaching a consensus that catching up in large model technology is not particularly difficult, and a performance lead of just a few weeks is no longer sufficient reason to buy related stocks.

Investors are closely monitoring the progress of new models such as DeepSeek V4 Pro, Alibaba's (09988-HK) Qwen 4.0, Zhipu's (02513-HK) GLM 5.3, and MINIMAX's (00100-HK) M3.1.

Zhipu, having demonstrated strong user and revenue performance following the launch of GLM 5.2, is seen as a 'high-quality' candidate. However, doubts remain about whether it can sustain its lead in code generation capabilities. Although MiniMax is considered to lag behind leading players in model capability, its $11 billion valuation remains attractive to some investors.

In contrast, the market is increasingly focused on commercialization opportunities in multi-model ecosystems, AI agents, and end-user AI. After Tencent officially launched Hunyuan HY3.0 in July, market concerns over its foundational large model progress have significantly subsided. Combined with WorkBuddy's user advantage in the AI agent application layer and the consumer-side benefits brought by the proliferation of end-user AI, Tencent is viewed as a primary beneficiary.

However, if WeChat Agents are rolled out at scale, they could incur substantial token costs, and with depreciation pressure, the market has begun discussing potential downside risks to Tencent's earnings per share (EPS) from late 2026 to 2027.

ByteDance's Offensive Cools, Platform Stocks Gain Momentum

Another key factor driving improved market sentiment is the declining competitive pressure from ByteDance in local life and e-commerce. Channel surveys indicate a substantive easing in competitive dynamics, prompting capital to return to listed e-commerce platform companies.

Meituan (03690-HK) and JD.com (JD-US) are the main beneficiaries. As competition in instant retail eases, the market expects Meituan's unit economics (UE) to continue improving from late 2026 onward, with bullish sentiment likely to remain strong. JD.com is also seeing improved EPS expectations, and its increased share buyback efforts have reattracted market attention.

However, investor concerns remain, including whether funds saved from reduced losses in food delivery and instant retail will be reinvested into new, uncertain ventures such as AI and overseas expansion. Meituan's order growth visibility also remains low.

Alibaba Becomes Consensus Buy, But No Longer a 'Hold-and-Forget' Stock

Alibaba (09988-HK) has become a consensus buy among investors, but it is no longer seen as a long-term 'buy-and-hold' core holding. The market widely believes that loss containment in its instant retail business could drive EPS forecast upgrades over the next few quarters, though expectations for customer management revenue (CMR) have been downgraded.

Meanwhile, the market holds high short-term growth expectations for Alibaba Cloud, with widespread forecasts predicting year-on-year revenue growth of 45% or more in the June quarter. Some investors even anticipate cloud revenue growth exceeding 50% by 2027. However, amid the rise of independent AI labs, the competitiveness of Qwen and its free cash flow performance remain key investor concerns.

Weak Consumption, Summer Travel as a Stress Test

Despite improving sentiment toward tech and platform stocks, overseas investors remain cautious about China's consumption outlook, with summer travel demand serving as a new focal point.

Ctrip saw a temporary rebound after the conclusion of regulatory investigations but has not attracted immediate capital inflows. Weak consumer confidence and adverse weather have led to sluggish summer travel activity, raising market concerns about potential new EPS downgrades. Hotel conversion rates are under pressure, and the risk of Meituan and ByteDance capturing market share further dampens investor sentiment.

NetEase (09999-HK) briefly became a consensus bullish pick during the June sell-off, but the underwhelming performance of 'Sea of Remnant' after its early July launch has heightened concerns over short-term EPS pressure. However, updates to existing games like 'Justice' and the launch of new servers in July are expected to support near-term performance.

Chinese Stocks Turn Bullish, But Capital Is More Selective

For other individual stocks, investor focus at Baidu Group (09888-HK) has shifted to its in-house AI chip design capabilities, revenue scale, potential valuation, and potential spin-off timeline. Bilibili has received relatively limited attention, with the market awaiting Tencent's completion of its share disposal, though its platform value and natural user engagement growth since 2025 are acknowledged.

Kuaishou (01024-HK) faces ongoing competition for its 'Kling' product from ByteDance's similar offerings, and with a lack of short-term catalysts following recent fundraising, market interest remains limited. Pinduoduo and Tencent Music are similarly sidelined due to a lack of clear entry logic.

Overall, the July rebound has shifted overseas investors' stance on Chinese stocks from 'helpless' at the end of June to 'opportunity-driven bullish.' However, this is not a broad-based rally. Capital is now more rigorously differentiating companies based on valuation, profit improvement potential, and AI commercialization ability, gradually shifting from betting on large models themselves to companies that can truly convert AI into users, revenue, and profits.