China's AI stock rally has room to run as valuations lag US giants, Goldman Sachs says

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China's AI stock rally has room to run as valuations lag US giants, Goldman Sachs says.

stock :: 2025-11-24 :: source - South China Morning Post

By South China Morning Post

The artificial intelligence-led stock rally in China is far from a bubble, as the nation's technology firms still have room to expand valuations and earnings through their focus on applications, according to Goldman Sachs' chief China equity strategist.

China's approach to investing more capital in AI applications as opposed to the US strategy of focusing on computing power gave investors "comfort that its AI monetisation capability could be better, at least in the short term", Kinger Lau said in an interview on Thursday.

"The key question is how companies monetise the demand for AI-related products," he said. "Relative to the US, Chinese companies focused on applications are still trading at much more reasonable valuations."

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His remarks come amid growing jitters of a global AI bubble, with surging stocks and vast investments seemingly racing ahead of fundamentals. Optimism around China's ascent as an AI superpower has intensified since start-up DeepSeek introduced efficient low-cost models and Big Tech firms 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>

"China's AI stock boom is far from a bubble from a valuation perspective," Lau said. The top 10 tech companies in China have a combined market capitalisation of US$2.5 trillion, while their US counterparts are at US$25 trillion - a tenfold difference. These US companies also represent about 40 per cent of the S&P 500 market capitalisation, while their Chinese peers account for about 15 per cent of the broader group.

"The AI story will play out in China," Lau said. "The AI investment cycle, which is around 18 months behind the US, has more room to grow and translate into earnings and revenue growth."

The theme was also a key focus of China's latest five-year plan - the country's main economic and social road map, which met 90 per cent of its growth and development targets over the past five plans - according to Goldman Sachs' research.

"China's bull market will extend, but the pace of the increase will likely moderate, as next year's driver shifts from multiple expansion to earnings recovery," Lau said.

The US investment bank forecast Chinese companies' earnings to grow 12 to 13 per cent next year, an acceleration from the 2 to 3 per cent predicted this year.

Valuation re-rating would moderate to about 5 to 10 per cent after the MSCI China Index logged a 48 per cent price-to-earnings growth from a low in late 2022. The bank forecast a 30 per cent upside for Chinese stocks by 2027.

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

"Chinese companies are expanding aggressively globally and generating around 15 per cent of their revenues overseas, compared with 30 per cent for US companies, leaving room to grow market share further," he said.

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

Southbound net inflow was likely to hit another record next year after reaching an all-time high of US$130 billion this year. Retail investors would continue diversifying their portfolios from the property market, while institutional money heeded the requirement to allocate more into onshore equities, Lau said.

"Global investors who are less sensitive to political or geopolitical tensions are increasingly open to exploring opportunities in China, recognising compelling growth potential, especially in technology and AI," he said.

Lau said that despite the political narrative limiting US investor appetite for China, the bank's clients from emerging markets such as Mexico, Chile and the Middle East were actively pursuing Chinese assets, viewing China's technology sector as crucial for 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, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.