Goldman Sachs: Navigating China Internet and Key AI Debates
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Goldman Sachs ranks cloud and data centers as the most preferred sub-sector within the China internet space, driven by expanding AI token demand and improving pricing power. E-commerce and mobility are upgraded to the second priority based on attractive valuations and improving first-quarter trends. Meanwhile, gaming and entertainment are shifted to third, reflecting a healthy transition in user time spent. Chinese hyperscalers are well-positioned for further investment, with capital expenditures accounting for only 58% of operating cash flow, significantly lower than the 89% average for their US peers.
The report addresses key AI debates, noting that ByteDance doubled its daily token volume over three months. Alibaba's cloud revenue growth is projected to accelerate to 40% for the March 2026 quarter, while its MaaS token usage grew sixfold. Alibaba's capital expenditure is expected to reach 180 billion RMB in fiscal 2027, with Tencent projected at 100 billion RMB for 2026. In e-commerce, PDD and Manbang offer compelling mid-single-digit ex-cash P/E multiples. Goldman Sachs anticipates that PDD's Temu will surpass $100 billion in GMV by 2026. The firm views the risk-reward profile for Alibaba and Tencent as highly favorable. Regulatory uncertainties, including ongoing antitrust investigations, may clear by the second half of 2026, potentially unlocking further valuation upside.