The artificial intelligence-led stock rally in China is far from a bubble, as the nation’s technology firms still have room to expand valuations and earnings through their focus on applications, according to Goldman Sachs’ chief China equity strategist.
China’s approach to investing more capital in AI applications as opposed to the US strategy of focusing on computing power gave investors “comfort that its AI monetisation capability could be better, at least in the short term”, Kinger Lau said in an interview on Thursday.
“The key question is how companies monetise the demand for AI-related products,” he said. “Relative to the US, Chinese companies focused on applications are still trading at much more reasonable valuations.”
“China’s AI stock boom is far from a bubble from a valuation perspective,” Lau said. The top 10 tech companies in China have a combined market capitalisation of US$2.5 trillion, while their US counterparts are at US$25 trillion – a tenfold difference. These US companies also represent about 40 per cent of the S&P 500 market capitalisation, while their Chinese peers account for about 15 per cent of the broader group.
“The AI story will play out in China,” Lau said. “The AI investment cycle, which is around 18 months behind the US, has more room to grow and translate into earnings and revenue growth.”
