(Jan 27): Earnings estimates for China’s broader information technology firms have been outpacing the country’s biggest consumer-internet names, with a record-high divide that has been growing for two years.
With the continued artificial intelligence boom and Beijing’s emphasis on technological self-reliance in its five-year economic blueprint, AI hardware-focused companies are driving upward revisions in the IT sector. Chipmaker Cambricon Technologies Corp, optical solutions firm Zhongji Innolight Co and AI server manufacturer Foxconn Industrial Internet Co are among those expected to see strong annual profit growth through 2027.
On the other hand, e-commerce and food delivery bellwethers like Alibaba Group Holding Ltd, Meituan and JD.com Inc have been held back by price wars and intense competition, something China is trying to curb.
Net income estimates for the nation’s information technology sector grew 50% year-on-year as of Jan 16, compared with a 12% decline for the so-called China Tech 8, Bloomberg Intelligence data shows. Besides Alibaba, Meituan and JD.com, the Tech 8 also consists of Tencent Holdings Ltd, Baidu Inc, NetEase Inc, PDD Holdings Inc and Xiaomi Corp. While the majority of these constituents are internet platform companies, Xiaomi distinguishes itself as a hardware-centric firm within the country’s IT sector.
Large internet platforms have historically been the earnings drivers in China. The weakness seen in 2025 was the result of competition peaking, with a price war between firms like Meituan and JD.com pushing their earnings into contraction, according to BI’s Jason Liao.
“As the majority of the Tech 8 are platform stocks that were dragged down by price wars in 2025, semiconductors — especially memory chip stocks — are seeing increased preference as beneficiaries of policy support and AI tailwinds,” he said.
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While the AI boom propelled hardware names like Zhongji Innolight, Cambricon, Hua Hong Semiconductor Ltd and Hygon Information Technology Co to triple-digit gains in the last 12 months, some internet platforms have lagged behind.
Within the Tech 8 basket, Meituan and JD.com were among the weaker performers, with their Hong Kong-listed shares sliding 35% and 26% over the same period, respectively.
The disparity in earnings estimates is driven by the hardware companies being direct beneficiaries of the AI cycle, while the large existing operations of internet giants will dilute overall growth, said Cusson Leung, chief investment officer for KGI Asia.
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The gap is expected to narrow in the long run with Tech 8 performance seen improving. Bright spots include Tencent, which could also see resilient growth for ads and games.
“Looking ahead we still see them as key drivers, not laggards, especially as they pivot toward new revenue streams such as cloud and AI,” Liao said.
The challenges faced by the big internet companies means AI growth has become pivotal for China’s full-year earnings season in March. The country has entered 2026 with a fresh wave of technological advances that are powering a stock rally, barely a year after DeepSeek’s AI breakthrough rattled global markets.
The hardware companies have been benefiting from rising global AI investment, driven by strong demand for large language model training and technology upgrades from global AI players, Nomura analyst Bing Duan said. While they’ve dealt with some bottlenecks, such as a lack of advanced AI chips, this may improve going forward with sufficient chip supply from global and local suppliers, he added.
Recent listings from generative AI startups MiniMax Group Inc and Knowledge Atlas Technology JSC Ltd — also known as Zhipu — have fueled the hype.
While there are AI opportunities for China’s internet giants this year, the sector may lack immediate catalysts for further meaningful valuation expansion, unless there are earnings upgrades, HSBC analysts led by Charlene Liu wrote in a note.
Investors have also so far ignored the fundamental reality that most firms have yet to generate meaningful revenue from their substantial AI investments, BI analysts Robert Lea and Jasmine Lyu wrote in a note.
“China’s AI sector will remain loss-making for the foreseeable future, in our analysis, given the persistent structural challenge to monetisation,” they said.
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