UBS: China AI Hardware Valuations Near Historical Average as Deleveraging Nears End
UBS strategists said selected Chinese AI technology hardware stocks fell 32% in July, with about 36% of the stocks posting monthly declines of 40% or more.
UBS strategists said selected Chinese AI technology hardware stocks fell 32% in July, with about 36% of the stocks posting monthly declines of 40% or more. The A-share margin-financing balance fell from a peak of 3 trillion yuan to 2.6 trillion yuan, indicating that leverage has largely been cleared.
UBS believes the worst phase of the technical selloff and deleveraging has passed and views the current environment as a potential window to rebuild positions in Chinese technology stocks. The global AI narrative has turned more positive on results from U.S. hyperscale cloud companies, while the fundamentals of China's AI supply chain remain unchanged and EPS estimates continue to be revised upward. Valuations have come down from extreme levels to only slightly above their historical average, creating what UBS describes as a favorable risk-reward profile.
The key distinction, according to UBS, is that although technology hardware fundamentals have not changed, investors are unlikely to embrace hardware to the same extent as before because of recent volatility and concerns about AI monetization. UBS expects market breadth to expand in the second half of the year, with capital spreading from hardware to internet companies, power equipment and nonferrous metals.
It removes Muyuan Foods and Yangzijiang Shipbuilding, among others.
In summary, UBS said deleveraging in Chinese AI technology stocks is nearing its end. With valuations having been brought back to a more reasonable range and the global AI narrative improving, a potential positioning window is opening for Chinese technology stocks in the second half of the year. However, capital is expected to spread from the hardware segment into broader areas including internet companies, power equipment and nonferrous metals.
The note identifies Chinese semiconductor equipment companies such as NAURA and JCET, internet companies including Tencent, Baidu and Alibaba, power-equipment company CATL, and nonferrous-metals producer Zijin Mining as potential beneficiaries. Deleveraging has largely been priced in, but investor sentiment is still recovering and positions are still being rebuilt; the market is not yet in a state of indiscriminate buying.
UBS-listed catalysts are: faster AIDC construction in the second half of the year, alongside improved domestic GPU supply; further earnings confirmation from hyperscale cloud companies on AI monetization; whether the A-share margin-financing balance stabilizes and begins to recover; whether the sequential growth rate of corporate AI spending can remain at the current 25%; and whether capital returns to sectors that previously suffered sharp declines.
UBS believes the worst phase of the technical selloff and deleveraging has passed and views the current environment as a potential window to rebuild positions in Chinese technology stocks. The global AI narrative has turned more positive on results from U.S. hyperscale cloud companies, while the fundamentals of China's AI supply chain remain unchanged and EPS estimates continue to be revised upward. Valuations have come down from extreme levels to only slightly above their historical average, creating what UBS describes as a favorable risk-reward profile.
The key distinction, according to UBS, is that although technology hardware fundamentals have not changed, investors are unlikely to embrace hardware to the same extent as before because of recent volatility and concerns about AI monetization. UBS expects market breadth to expand in the second half of the year, with capital spreading from hardware to internet companies, power equipment and nonferrous metals.
It removes Muyuan Foods and Yangzijiang Shipbuilding, among others.
In summary, UBS said deleveraging in Chinese AI technology stocks is nearing its end. With valuations having been brought back to a more reasonable range and the global AI narrative improving, a potential positioning window is opening for Chinese technology stocks in the second half of the year. However, capital is expected to spread from the hardware segment into broader areas including internet companies, power equipment and nonferrous metals.
The note identifies Chinese semiconductor equipment companies such as NAURA and JCET, internet companies including Tencent, Baidu and Alibaba, power-equipment company CATL, and nonferrous-metals producer Zijin Mining as potential beneficiaries. Deleveraging has largely been priced in, but investor sentiment is still recovering and positions are still being rebuilt; the market is not yet in a state of indiscriminate buying.
UBS-listed catalysts are: faster AIDC construction in the second half of the year, alongside improved domestic GPU supply; further earnings confirmation from hyperscale cloud companies on AI monetization; whether the A-share margin-financing balance stabilizes and begins to recover; whether the sequential growth rate of corporate AI spending can remain at the current 25%; and whether capital returns to sectors that previously suffered sharp declines.