China’s AI trade moves from infrastructure to applications. Stocks to watch
Local investors in China are excited about a new artificial intelligence stock trend. As trading volumes in the retail investor-dominated mainland Chinese stocks surged to record highs this month, one of the big themes centered on generative engine optimization, or GEO . It’s the idea that advertisers will spend more on getting brands to show up in AI-generated chatbot results. Part of the shift is driven by concerns about a bubble in AI chips and other computing power infrastructure, said Wei Wang, a researcher at Tianjin University of Commerce who also runs 10 investment-focused Chinese group chats with more than 3,000 members. News in late December of Meta Platforms’ deal to buy Manus has also bolstered Chinese investors’ interest in agentic AI, Wang said, referring to generative AI tools that can automatically make a series of decisions in order to produce better output. Manus started developing its agentic AI tools — for tasks such as market research and data analysis — as a start-up in China, before relocating to Singapore. “AI agents and its monetization opportunity … is likely to be the top investment theme in 2026,” Bank of America analysts said in a report earlier this month. “We believe established China Internet ecosystems, namely Tencent , Alibaba and ByteDance, have natural advantage on incorporating AI agents.” “Within China internet sector, we see Alibaba (Buy) as the best proxy for ‘AI in China’ theme,” the BofA analysts said, noting the e-commerce giant also has a strong AI cloud business. They rate the stock a buy, with a price target of $180. This month, Alibaba upgraded its Qwen AI app so that users interacting with the chatbot can shop, order food and pay without leaving the app — thanks to integration with the company’s existing e-commerce platforms. Qwen claims more than 100 million monthly active users. Gaming giant Tencent, which operates the WeChat app with around 1.4 billion users , has developed its own AI chatbot and AI-based advertising tools. “We continue to see Tencent as the key AI application beneficiary in China Internet, given AI has helped empower long runways of growth across all of its major business lines, games, advertising, fintech and cloud,” Goldman Sachs analysts said in a Jan. 19 report. They rate the stock a buy, with a price target of 752 Hong Kong dollars. Adapting to changing ad spend ByteDance, which owns TikTok and isn’t publicly traded, is driving the industry race in China with the country’s most popular AI app, Doubao, multiple analysts have pointed out. Late last year, ByteDance also started testing how it might integrate Doubao’s AI capabilities into a smartphone. “We see 2026 as a strategic pivot year for China internet mega-caps with stepping up of AI to-[consumer] investments,” the Goldman analysts said. They predict it could be the first year for markets to realize potential disruptions to user habits — such as more entertainment screen time if AI assistants take care of mundane tasks. “Similar to trends seen in the US, we expect more brands/advertisers in China to adopt ROI-based ads in eCommerce/local services,” the analysts said, anticipating advertising budgets shift from traditional search engine optimization (SEO) strategies to one combined with GEO and a similar AI-focused strategy called AEO, or answer engine optimization. Chinese research firm Analysys this month predicted that China’s GEO market would skyrocket in value to 3 billion yuan ($430 million) this year , up from 250 million yuan ($35.9 million) in 2025. They expect further growth to 9 billion yuan ($1.29 billion) in 2027. Even then, it’s still a fraction of the Chinese social media online advertising industry, which Goldman Sachs estimates will grow to well over 600 billion yuan this year. While AI’s rapid development doesn’t guarantee which tools will end up producing the most commercial value, large companies that adapt can likely stay ahead. The mainland China investment capital that piled into locally traded stocks is also pouring into those plays in Hong Kong. Alibaba and Tencent shares traded in Hong Kong ranked among the three most-popular stocks by net buys from mainland-based investors over the last seven days, according to Wind Information. Those “southbound” flows from the mainland to Hong Kong have become a “meaningful price influencer, if not price setter, for many China internet stocks,” the BofA analysts pointed out. For stocks such as Alibaba that are also listed in the U.S., that liquidity is rivaled or exceeded by trading in Hong Kong, the report said. —CNBC’s Michael Bloom contributed to this report.
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