Lyon: The 2026 Sino-US AI competition will be upgraded, first choice Tencent (00700) and others.
In terms of valuation, the bank pointed out that the current 2026 forecasted adjusted P/E ratio for the sector is 16.1 times (13.7 times for 2027), representing a discount of approximately 40% compared to its US counterparts, making the valuation still attractive.
Lyons released a research report stating that the Chinese internet industry will perform strongly in 2025, with DeepSeek leading the domestic AI trend. It is expected that the uptrend will continue in 2026, especially with increased competition in proxy AI and generative video applications. China and the United States will engage in direct competition in the global AI model, application, cloud service, and autonomous driving (Robotaxi) fields.
Despite facing geopolitical challenges, Chinese games and e-commerce continue to grow rapidly in overseas markets. However, the bank holds a cautious outlook on the domestic e-commerce sector. In terms of investment strategy, Lyons prefers AI, gaming, and healthcare related sectors. It predicts industry revenue and adjusted EBIT will increase by 12% and 29% respectively year-on-year, and believes that China is poised to lead the global application of AI.
In terms of valuation, the bank points out that the current sector's forecasted adjusted P/E ratio for 2026 is 16.1 times (13.7 times for 2027), which is about 40% discount compared to American counterparts, making the valuation still attractive.
Lyons listed six top stocks for 2026, including TENCENT (00700), XIAOMI-W (01810), BABA-W (09988), NTES-S (09899), KUAISHOU-W (01024), and JD HEALTH (09618), and specifically highlighted the promising prospects of Alibaba's cloud business, Tencent's AI applications, and Xiaomi's consumer-grade AI devices.
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