China’s earnings season is underway. Here’s who’s benefiting from AI
As China rolls out a grand plan for integrating artificial intelligence into the economy, the latest earnings results show that some companies are already seeing results amid slower overall growth . Mainland China stocks, known as A shares, have so far reported third-quarter earnings growth of 12% from a year ago, according to UBS Securities China equity strategist Lei Meng in a report Tuesday. “Given a demand upswing from AI and self-reliance, the greater tech sector’s rapid earnings growth drove overall ex-financials’ earnings.” Earnings in AI-related sectors such as media, electronics and computers have risen by 57%, 41% and 34%, respectively in the third quarter, Meng said. “We think ‘growth’ may remain a key investment theme. We highlight better risk/reward in the ChiNext board, due to its accelerating earnings with long-term resilience and valuation.” The ChiNext is a Shenzhen, China stock index whose largest members include CATL, Innolight and Sungrow Power. In mainland China, “hardware manufacturers related to AI infrastructure have benefited the most from the rally,” said Herald van der Linde, head of Asia Pacific equity strategy at HSBC. In Hong Kong, “internet names with AI-related cloud services and models have benefited the most,” Van der Linde said in an email Thursday. Struggling stocks As earnings season gets underway, Chinese stocks have struggled in the midst of major events such as the five-year, goal-setting “fourth plenum” meeting of top leaders in late October, and trade talks between Chinese President Xi Jinping and U.S. President Donald Trump. Mainland China’s CSI 300 stock index rose last month to its highest since early 2022, but has since struggled to top those gains. The Shanghai Composite soared to 10-year highs in recent weeks, but failed again Friday to hold the psychologically key 4,000 mark. “Market sentiment weakened toward year-end amid lower risk appetite and ongoing 3Q earnings releases,” Morgan Stanley’s chief China equity strategist Laura Wang said in a note Thursday. “We remain constructive on China over the medium term and will closely monitor e-commerce companies’ guidance, as it may provide indications of how 2026 earnings growth could unfold.” Gaming and social media giant Tencent Holdings , the largest stock by market capitalization in Hong Kong, is set to release earnings on next Thursday. Alibaba Group has yet to share when its next earnings report is scheduled. HSBC’s Van der Linde said that major Chinese tech companies’ capital spending, including Alibaba and China Unicom and others, is estimated at around $63 billion for 2025 — significantly higher than the $44 billion invested 2024. The strategist said companies in the mainland China CSI 300 index are posting third-quarter earnings growth of 5% compared with the same period a year ago. But companies in Hong Kong’s Hang Seng Index have so far reported about a 1% decline in third-quarter earnings from a year ago, largely due to an intense price war among internet companies, Van der Linde said. He noted that the profit margin for Hang Seng stocks is 14%, down from 16% a year ago. Economic bifurcation The divergence mirrors China’s bifurcated economy, as industries try to adapt to new technologies in the face of a real estate slump and trade disputes with the United States. Analysts at Bernstein and Societe Generale said in a joint Nov. 3 report that just a few sectors — consumer discretionary, communications, technology and healthcare — are expected to contribute about three-quarters of earnings per share growth between 2024 and 2027. Those four sectors are the focus of the SG Bernstein China Next Winners Basket. Its top three technology recommendations are: Chinese consumer electronics giant Xiaomi , data center optical solutions provider Innolight and Luxshare , another data center components player. “With the fourth plenum and Trump-Xi meeting in Korea now behind us, I think the outlook has improved to a cautiously optimistic one instead of pessimism resulting from the worst trade war tensions since Trump’s first term,” said Brian Tycangco, an analyst at Stansberry Research, adding that investors should “expect better earnings expectations to sustain the uptrend in stocks both in the U.S. and in China.” The more stable environment means that companies can make plans for at least the next 12 months, and Beijing can focus more on existing policy priorities, Tycangco said. “So, I expect the same outperforming sectors in 2025 (i.e. robotics, semiconductor, e-commerce and new generation consumption stocks like Pop Mart) to continue their winning streak in the coming year.” — CNBC’s Michael Bloom contributed to this report.
