China's AI stock rally has room to run as valuations lag US giants, Goldman Sachs says

Core Viewpoint - The artificial intelligence-led stock rally in China is not a bubble, as technology firms have potential for valuation and earnings expansion through application focus [1][4]. Group 1: Investment Strategy - China's investment strategy emphasizes capital allocation towards AI applications, contrasting with the US focus on computing power, which may enhance short-term monetization capabilities for Chinese firms [2]. - The key consideration for investors is how companies will monetize the demand for AI-related products, with Chinese firms currently trading at more reasonable valuations compared to their US counterparts [2]. Group 2: Market Context - Concerns about a global AI bubble are rising due to rapidly increasing stock prices and investments that appear to outpace fundamental growth [3]. - The optimism surrounding China's emergence as an AI superpower has been fueled by innovations from start-ups like DeepSeek and new AI tools from major tech companies [3]. Group 3: Market Valuation - The top 10 tech companies in China have a combined market capitalization of US$2.5 trillion, significantly lower than the US tech companies' US$25 trillion, indicating a tenfold valuation difference [4]. - Chinese tech companies account for approximately 15% of the broader market capitalization, while their US counterparts represent about 40% of the S&P 500 [4]. Group 4: Growth Potential - The AI investment cycle in China is approximately 18 months behind that of the US, suggesting more room for growth and potential earnings and revenue increases [5]. - China's latest five-year plan highlights AI as a key focus area, having met 90% of its growth and development targets in previous plans [5]. Group 5: Market Outlook - The bullish market trend in China is expected to continue, although the pace of growth may moderate as the focus shifts from multiple expansions to earnings recovery [6].