Hong Hao: China's AI market has entered the second phase, and high-quality companies are performing better.

On August 13, renowned economist Hong Hao shared his insights on the future of AI markets in an interview. The key points summarized by the representative of the investment notebook are as follows: 1. After a two-month adjustment, many technology stocks have returned to more realistic price levels, and valuations have become more reasonable. 2. This round of AI growth has entered its second phase. Essentially, quality is now more important than the stories themselves or the number of stocks. The market is entering a stage of differentiation: high-quality stocks will perform well, while those that only tell stories will continue to lag behind the entire sector. 3. Chinese semiconductor companies now dominate the mid-to-low-end segment. Semiconductor exports are still growing, with a year-on-year increase of 50%-60%, which is a very high double-digit growth rate. Therefore, I believe many stocks are expected to continue performing well, but considering valuations and the sustainability of profit growth, some lower-quality stocks will underperform. 4. (Tencent and Alibaba) are still on the road to transforming from traditional internet companies to new AI cloud computing companies and have a long way to go. Although the stock prices of these companies have been rising recently, most are just technical rebounds. Hong Hao believes that after two months of adjustment, the valuations of Chinese tech stocks have returned to a reasonable range. The AI market has shifted from "telling stories" to "focusing on quality" in its second phase, where high-quality stocks that deliver performance will continue to outperform, while those that only tell stories will fall behind. In addition, Korean funds are rotating into Hong Kong stocks, becoming a new variable in the market but have yet to change the structure of the Hong Kong market. Here are the highlights compiled by the representative of the investment notebook, shared with everyone: Many technology stocks have seen more reasonable valuations after adjustments. Host: Do you think that the adjustment in July helped return the valuations of Chinese tech stocks to more attractive levels, making you more optimistic about the market? Hong Hao: Yes, I believe that after two months of adjustment, many stocks have returned to more realistic price levels, and valuations have become more reasonable. Thus, part of the overvaluation and extreme relative increases have been corrected. As a result, many funds are reassessing these stocks. I have also heard that some foreign investors are reevaluating Chinese AI stocks. This round of AI growth has entered its second phase. Host: However, have the criteria for assessing Chinese stocks changed? Previously, it was simply about participating in AI trades; how much of it is now genuinely focused on whether the investments of these companies can actual performance? Hong Hao: Yes, I believe this round of growth has entered its second phase. Essentially, quality is now more important than the stories themselves or the number of stocks. In the Chinese AI sector, many stocks have good stories to tell, but very few have performance to show. Therefore, I believe the market is entering a stage of differentiation: high-quality stocks will perform well, while those that only tell stories will continue to lag behind the entire sector. Choosing high-quality companies Host: What indicators qualify as truly high quality? Is it cash flow, monetization capability, capital expenditure, or returns? Hong Hao: Yes, some companies are still in their early development stages, but many of them have already demonstrated promising results. For example, the newly released Pro model from DeepSeek and Kimi 3many models can now benchmark against their American counterparts while significantly reducing costs. Therefore, I believe many such companies are moving towards financing in the capital markets and will receive a very positive response. Additionally, some existing companies that continue to show progress in model development and token consumption will also remain in the spotlight. On the other hand, some stocks had impressive performance last quarter, with profit increases possibly reaching 1000%. However, many people doubt whether such strong profit growth can be sustained, as their production capacity still relies on overseas orders to fulfill demand. I believe Chinese semiconductor companies now dominate the mid-to-low-end segment. Looking at the recent Chinese export data, semiconductor exports are still growing, with a year-on-year increase of 50%-60%, which is a very high double-digit growth rate. Therefore, I believe many stocks are expected to continue performing well, but considering valuations and the sustainability of profit growth, some lower-quality stocks will underperform. The rise in Tencent and Alibaba's stock prices is a technical rebound. They still have a long way to go in their transformation from internet companies to AI cloud computing companies. Host: What about tech giants like Tencent and Alibaba? Taking Tencent as an example, we see that its revenue exceeded expectations, but at the same time, AI and computing expenditures doubled. When will their AI investments start generating returns? How should investors weigh this? Also, what do you think of their reliance on the domestic market, especially retail? Hong Hao: Yes, I believe these companies are investing massively in AI, but most investors still see them as old economy companies, internet platform companies, or gaming companies. Despite their substantial investments, some of them have already achieved certain resultssuch as Tencent's Yuanbao, a very popular AI tool in China, performing well. However, the issue is that the contribution of the AI business to the overall performance of the group is still relatively small. Therefore, I believe they are still on the road to transforming from traditional internet companies to new AI cloud computing companies, and have a long way to go. Thus, while the stock prices of these companies have risen recently, most of it is merely a technical rebound. For instance, the news headlines just mentioned that many stocks' short positions have decreased from their peakthis is typically a contrarian signal indicating that the technical rebound has completed most of the gains in this round, and the easiest money has already been made in this rebound. So as we enter the second phase, what we need to look for is quality and the new profit driver for these companies. Strong exports, but stimulating consumption is more urgent. Host: Let's widen this question to the entire Chinese economy: we have seen the AI industry's boom, along with strong manufacturing and exports; but on the other hand, domestic demand is shrinking. Will the demand pressuresluggish economy, weak consumptioneventually outweigh the more positive, brighter side of the Chinese economy? Hong Hao: I believe China is currently managing well, with export sectors continuing to rise. Our exports are still maintaining very high double-digit growth. Right now, the export sector and high-end manufacturing are contributors to growth, but the urgency to stimulate consumption is becoming increasingly prominentconsumption growth and the growth rate of retail sales are slowing significantly, and we cannot rely solely on exports to drive growth. China's share of global exports is at a historic high. Essentially, many trading partners are finding it hard to compete with China. I believe almost all sectors in China are recording trade surplusesChinese manufacturers enjoy a definite advantage. Recently, we have heard increasingly strong criticisms from the EU, and there is growing evidence in academia that Chinese exports are essentially taking away the livelihoods of European exporters. Therefore, I anticipate that we will see more trade frictions, especially between China and Europe. Korean capital flowing into Hong Kong stocks, becoming a new force in the market. Host: You mentioned in your notes that under the AI boom, aggressive Korean traders are entering the Hong Kong market. Of course, after experiencing this round of market volatility, will this have a substantive impact on the structure of the Hong Kong market? What should we pay attention to? Hong Hao: Not yet. I believe Korean traders are known for their willingness to take risks and their high risk appetite. You see, the rebound in the Hong Kong market over the past two weeks has been remarkablethe Hang Seng Index has risen over 15% from the bottom. You have to admit that new capital has come in. I have heard that a significant portion of this capital has actually rotated from the Korean market to seek opportunities in Hong Kongwhere valuations are cheap, and many Chinese AI stocks have yet to be discovered. Therefore, I believe this is a new force in the market. Hong Kong welcomes this new type of trader who brings both capital and risk appetite. This article is reproduced from "Investment Notebook," edited by GMTEight: Li Fo.