Jefferies China AI Monthly: US-China Valuation Comparison

Jefferies updates its US and China AI valuation frameworks, noting that the US AI basket of 46 stocks has added approximately $8 trillion in market capitalization since July 2024, representing 42% growth and implying an incremental 2026 price-to-earnings ratio of 35 times. This expansion was driven primarily by optics and storage. Meanwhile, the China AI basket of 33 stocks has surged approximately $732 billion, or 88%, since January 13, 2025, driven by specialized power equipment and foundries. Despite this rapid appreciation, China's total AI market capitalization remains only 8% of the US figure, while its capital expenditure ratio stands at 18%, suggesting meaningful further upside potential. Subsector analysis reveals that cloud service providers, AI applications, and data center operators trade at discounts to US peers, whereas integrated circuit design, foundries, and power equipment names carry significant premiums. This valuation gap underpins Jefferies' constructive views on VNET, GDS, and Kingdee. The performance disparity between Chinese and US large language models has narrowed to 6% from 8% previously, aided by the release of Zhipu's GLM 4.7 in late December. Policy support remains robust, with eight ministries jointly issuing an AI-plus-manufacturing action plan targeting industrial intelligence deployment. Potential catalysts include US chip export approvals and large-scale data center orders from ByteDance and Alibaba.