China Internet: AI or Bust? A Post-CNY Debrief
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Bernstein reports that Chinese internet giants deployed RMB 4.5 billion in red envelope subsidies around the Lunar New Year to drive AI chatbot user growth, but early results were mixed. Tongyi Qianwen and Yuanbao saw daily active users (DAU) surge to 74 million and 41 million respectively during promotional periods, before retreating to 33 million and 8 million by February 22. Daily active sessions per DAU remained largely unchanged, suggesting that cash subsidies have not effectively cultivated sustained information-retrieval habits.
Large-cap internet valuations have absorbed significant AI expectations, with many companies trading at the 10th to 20th percentile of their 2022 valuation ranges. Meanwhile, AI laboratory stocks such as Minimax and Zhipu have surged over 500% year-to-date, but this growth is heavily driven by free tokens, pressuring inference margins and cash burn. On OpenRouter, usage of Chinese models grew 125% in the week of February 15 versus two weeks prior, with 33% of Minimax and 80% of Zhipu's growth attributable to free tokens. Notably, on 2030E price-to-sales multiples, these AI labs trade at premiums to OpenAI.
Bernstein maintains Tencent as its top pick with an Outperform rating and a target price of HK$820, supported by a sub-15x 2027E P/E. Alibaba carries an Outperform rating with U.S. and Hong Kong targets of $190 and HK$186, while NetEase is rated Outperform at a $150 target, trading at an attractive 13–14x P/E.