Investment in artificial intelligence (AI) has significantly benefited certain Chinese technology firms in the first quarter of this year, despite ongoing economic challenges. According to Brian Tycangco, an analyst with Stansberry Research, “The standout for this [first quarter] reporting season was the growth in cloud business for Alibaba and Baidu.” Alibaba recently reported an 18% year-on-year increase in cloud revenue, while Baidu disclosed a remarkable 42% growth in its AI cloud services.
Tycangco highlighted that if such growth rates continue, cloud services could emerge as the second largest business segment for both Alibaba and Baidu. This trend is crucial, suggesting that cloud capabilities may pave the way for a resurgence in growth for these companies after a lengthy period of minimal top-line growth.
Alibaba, Tencent, and JD.com have also experienced double-digit growth in marketing revenues, attributed to AI-driven tools that enhance targeting capabilities for consumers. Such developments indicate a significant shift within Chinese markets. Laura Wang, chief China equity strategist at Morgan Stanley, noted in a May 20 analysis that sectors such as AI, technology, and New Economy companies are gaining prominence as leaders in the equity market. She expressed optimism about the emergence of a new generation of market leaders following a disruption phase that commenced after the market peak in early 2021, in contrast to previous gains led by consumer and internet stocks.
Among Morgan Stanley’s 60 Chinese AI stock recommendations, those projected to offer more than 50% upside as of May 19 include Gushengtang, a health-care firm specializing in traditional Chinese medicine and currently developing an AI physician assistant. Customer visits for Gushengtang surged by 12.7% in the first quarter, reaching 1.21 million.
Another highlighted company is Bairong, which provides cloud-based AI services primarily for state-owned banks and other financial institutions. In its 2024 annual report, Bairong revealed that Alibaba’s e-commerce platforms, Taobao and Tmall, utilize its AI service to assess consumer purchasing power. Morgan Stanley’s analysts favor Alibaba and Tencent over Baidu and iFlytek, as well as recommending Meituan, Meitu, and Trip.com over Kuaishou and JD.com.
Research from HSBC Qianhai Securities’ head, Steven Sun, disclosed that 68% of mainland China-listed companies referenced AI in their 2024 annual reports, an increase from 43% in the first half of 2024. He stated on May 16 that there has been a slight upward revision of the 2025 consensus capital expenditure for major cloud service providers following the first quarter of 2025 results, indicating continued optimism in their AI prospects.
The information technology sector reported a 24.7% increase in earnings compared to the previous year, driven by heightened AI adoption, making it one of the fastest-growing sectors. Among HSBC’s buy-rated selections is Sangfor, a cybersecurity and enterprise software company listed in Shenzhen, which has a price target set at 143 yuan due to the expected boost in earnings from AI advancements.
Additionally, the Chinese-developed AI tool DeepSeek made headlines in late January by proving capable of competing with OpenAI’s ChatGPT at a fraction of the development cost. In the time since, various Chinese companies have unveiled new AI applications for video generation and 3D modeling. Analysts from Morgan Stanley attribute these advancements to China’s vast pool of engineers, comprehensive data resources, and extensive social media and e-commerce landscape, while also noting government support as a catalyst for rapid tech adoption.
They observed that this structural improvement positions the market as less vulnerable to current tariff disputes and broader macroeconomic challenges. Such resilience is critical for attracting foreign investors aiming to make long-term commitments in distinctive and uniquely Chinese companies despite a general economic slowdown.
Chinese publicly traded companies primarily derive their revenue domestically, with only 3% exposure to U.S. markets, as indicated by the analysts. — Finance Newso’s Michael Bloom contributed to this report.
