China Internet: Has the bad news become good news? Sector valuations bottom out and await rebound (Bernstein)
Bernstein released a report on China's Internet industry, believing that the sector's valuation has dropped to the trough level in 2022-2023, all the bad news has been exhausted, and there may be a rebound.
Bernstein released a report on China's Internet industry, believing that the sector's valuation has dropped to the trough level in 2022-2023, all the bad news has been exhausted, and there may be a rebound. The core point of the report is that the release of Tencent's Hunyuan model and Alibaba's Q1 financial report were "no worse" and contributed to the recovery of market sentiment. Key data shows that stocks covered have fallen an average of 16% year-to-date. Bernstein lowered Alibaba's (BABA) FY3/27E revenue forecast by 1.6% to 1.122 billion yuan, but more importantly, the market's concerns about the cost of AI inference have become overly pessimistic. The logic behind it is that the market’s doubts about the return on investment (ROI) of AI have been fully reflected in the stock price, and giants such as Tencent and Alibaba are proving the value of their AI investments through practical actions. Market sentiment is already extremely pessimistic, bad news is fully priced in, and any marginal improvement could trigger a rebound. One-sentence conclusion: China's Internet sector has experienced deep adjustments, and negative factors have been basically digested by the market. Driven by new narratives such as AI and valuation restoration, the sector already has significant rebound potential. Positive/negative: Positive for Chinese Internet leaders such as Tencent (0700.HK) and Alibaba (BABA). The current stock price has basically priced in all pessimistic expectations such as macro and competition, and any marginal improvement will bring oversold rebound opportunities. Catalysts: 1) Tencent, Alibaba, Meituan and other companies are about to release quarterly financial reports, pay attention to whether profits exceed expectations; 2) relevant announcements on the commercialization progress of the company's AI applications; 3) marginal changes in macro policies (such as support for the platform economy) and regulatory environment.