Rally in China AI stocks has room to advance as valuations lag those of US giants, says Goldman Sachs

China’s AI-led stock rally is far from a bubble, as the country’s technology companies still have room to expand valuations and profits through their focus on applications, according to Goldman Sachs’ chief China equity strategist.

China’s approach of investing more capital in AI applications, as opposed to the US strategy of focusing on computing power, gave investors “reassurance that its ability to monetize AI could be better, at least in the short term,” Kinger Lau said in an interview on Thursday.

“The key question is how companies monetize the demand for AI-related products,” he said. “Compared to the United States, Chinese app-focused companies are still trading at much more reasonable valuations.”

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His comments come amid growing jitters about a global AI bubble, with stocks soaring and big investments seemingly ahead of fundamentals. Optimism around China’s rise as an AI superpower has intensified since startup DeepSeek introduced efficient low-cost models and big tech companies launched new AI tools.

Kinger Lau, chief China equity strategist at Goldman Sachs. Photo: Dickson Lee alt=Kinger Lau, chief China equity strategist at Goldman Sachs. Photo: Dickson Lee>

“The rise of AI stocks in China is far from a bubble from a valuation perspective,” Lau said. China’s top 10 tech companies have a combined market capitalization of $2.5 trillion, while their American counterparts have a market capitalization of $25 trillion, a difference ten times larger. These U.S. companies also account for about 40 percent of the S&P 500’s market capitalization, while their Chinese peers account for about 15 percent of the broader group.

“The story of AI will unfold in China,” Lau said. “The AI ​​investment cycle, which is about 18 months behind that of the US, has more room to grow and translate into profit and revenue growth.”

The issue was also a key focus of China’s latest five-year plan, the country’s main economic and social roadmap, which met 90 percent of its growth and development goals in the last five plans, according to Goldman Sachs research.

“China’s bull market will extend, but the pace of the rise will likely moderate, as next year’s driver shifts from multiple expansion to earnings recovery,” Lau said.

The US investment bank forecasts that Chinese companies’ profits will grow between 12 and 13 percent next year, an acceleration from the 2 to 3 percent forecast for this year.

The valuation rerating would be moderated to around 5 to 10 percent after the MSCI China Index recorded price-earnings growth of 48 percent from a low in late 2022. The bank forecast a 30 percent rise for Chinese stocks by 2027.

Profit growth would benefit from investments in AI, the country’s overall gross domestic product growth, anti-involution policies and the global expansion of Chinese companies, according to Lau.

“Chinese companies are aggressively expanding globally and generate about 15 percent of their revenue overseas, compared to 30 percent for U.S. companies, leaving room to further increase their market share,” he said.

Strong money flows from domestic and international investors would also contribute to a long-lasting bull run, Lau added.

Net inflows to the south are likely to hit another record next year, after hitting an all-time high of $130 billion this year. Retail investors would continue to diversify their portfolios from the property market, while institutional money met the requirement to allocate more to local stocks, Lau said.

“Global investors who are less sensitive to political or geopolitical tensions are increasingly open to exploring opportunities in China, recognizing compelling growth potential, especially in technology and artificial intelligence,” he said.

Lau said that despite the political narrative limiting US investors’ appetite for China, the bank’s clients from emerging markets such as Mexico, Chile and the Middle East were actively seeking Chinese assets, considering China’s technology sector crucial to long-term growth and diversification.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit SCMP Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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