A Place Where Some AI Stocks Are Still Cheap: China

SINGAPORE—The frenzy over artificial intelligence is sending technology-company valuations through the roof in the U.S. and Asian markets. One country still offers some relative bargains: China.

Hangzhou-based Alibaba is cheaper than comparable U.S. tech stocks, measured by forward price-to-earnings ratio.

Stock markets feature a parallel universe of Chinese technology champions: an e-commerce giant that isn’t Amazon, a search-engine and robotaxi company that isn’t Google and a chip manufacturer with a four-letter name other than TSMC.

While some smaller Chinese tech companies have experienced bubbly surges this year, shares in larger companies that are investing heavily in AI often cost less per dollar of revenue or profit than their famous counterparts abroad.

“This is an attractive opportunity,” Eva Lee, head of Greater China equities at Swiss bank UBS, said in a recent note. Top companies in the AI field are at “historically low valuations,” she said.

Beijing is backing the AI industry with favorable policies and financial incentives, seeking to build a tech ecosystem that is independent of Washington.

“They’re in a different cycle,” said Alvin So, an equity strategist in Asia for Goldman Sachs. He observed that while the 2022 introduction of ChatGPT triggered the U.S. generative-AI boom, China’s market only found its footing early last year, when DeepSeek released a large language model proving local firms could compete globally.

Alibaba has integrated its Qwen AI model into its e-commerce platforms and is pouring $50 billion over the next few years into cloud infrastructure—even designing its own AI chips, much like Amazon and Google.

Alibaba trades at a forward price-to-earnings ratio of 17, meaning investors are paying $17 for every dollar of earnings expected in the next year. The figure for Amazon, which runs a similar collection of businesses, is a pricier 27. “We view Alibaba as a global AI winner,” Morgan Stanley wrote in a recent note.

The risk is that the Chinese companies remain mostly stuck in their own market, which is in the economic doldrums. While large, China alone can’t match the global empire that companies such as Amazon have built.

Volatile geopolitics are a challenge. The Pentagon this month updated its list of Chinese businesses that it says work with Beijing’s military, designating around two dozen new companies, including Alibaba. That potentially limits their operations in America. Alibaba and other companies said they weren’t connected to the Chinese military and didn’t belong on the list.

Buying Chinese AI stocks isn’t seamless for American investors and sometimes is impossible. China’s Semiconductor Manufacturing International, known as SMIC, is on a U.S. blacklist and Americans can’t buy its shares. Shares in SMIC’s bigger rival, Taiwan Semiconductor Manufacturing or TSMC, are available through American depository receipts traded on the New York Stock Exchange.

Some Chinese companies are traded in Hong Kong, whose stock market is relatively open to global investors, and a few, including Alibaba, trade on the New York Stock Exchange. Foreign investors can also buy Shanghai- and Shenzhen-listed shares through a regulated channel involving brokers in Hong Kong.

More Chinese initial public offerings are coming that give investors an opportunity to get in on the ground floor. Memory-chip maker CXMT won approval last month to raise some $4 billion in a Shanghai IPO that will likely value the company in the tens of billions of dollars. It enters a market dominated by global giants like Samsung, SK Hynix and Micron—companies that have recently topped $1 trillion in market value thanks to the AI chip boom.

Goldman Sachs research shows global investors remain underexposed to China. While the country accounts for 10% of global AI-related market capitalization, global mutual-fund managers allocate just 1.2% of their global tech portfolios to Chinese AI equities, according to Goldman.

“For investors already heavily exposed to U.S.-centric AI leaders,” Chinese shares “offer differentiated exposure,” said Goldman’s So.

Some Chinese stocks are already mimicking the U.S. exuberance for AI, bringing their valuations far beyond bargain territory. Zhipu, which is developing a large language model to compete with the likes of OpenAI and Anthropic, listed in Hong Kong in January and its share price is now nine times the starting level.

Shanghai-listed Cambricon Technologies designs AI chips, competing with Nvidia. Its shares have tripled over the past year and trade at a forward price-to-earnings ratio of 128, compared with 23 for Nvidia.

Other companies deep into AI, however, hardly look exuberant. Robotaxi leader Baidu trades at just 14 times expected earnings. Tencent, owner of the WeChat app that boasts more than a billion users in China, is testing an AI agent for the app that could help users more easily manage payments, food delivery and taxi-hailing. Its shares trade at 13 times forward earnings.

Chinese battery giant CATL, which investment banks say is likely to be a beneficiary of power needs for AI data centers, is trading at 19 times earnings on the Shenzhen Stock Exchange.

Write to Rory Jones at [email protected]