Recently, a significant wave of revaluation of China's internet giants has emerged, sparked by developments around DeepSeekThis context aligns with the current turbulence in the stock prices of the "Big Tech Seven" in the United States, leading to speculation about the potential for China's "Ten Tech Sisters" to outperform their American counterparts.

Last Friday saw the S&P 500 index plummet by 1.71%, marking its worst performance since December 18, 2024. In light of this, many analysts have noted that the dynamic price-to-earnings ratios of China’s internet giants are generally only half of those in the USThis raises questions about how long this revaluation will last and whether it will attract greater foreign investment, capturing the attention of the investment community.

A bullish market driven by expectations can never replace the confirmation of solid performanceIn this regard, Alibaba's recently released financial report seems to have reassured investors, leading international investment banks like Goldman Sachs and Jefferies to raise their target prices accordingly.

Thomas Chong, the Asia-Pacific Internet and Media Industry Head at Jefferies, spoke with reporters about Alibaba's cloud business, which is performing better than anticipatedManagement has confirmed that in the next three years, their capital expenditure on AI and cloud services will exceed the total from the past decadeThis indicates strong demand for AI, and the Customer Management Revenue (CMR), representing the core e-commerce business, also exceeded forecastsHe noted that, compared to the United States, China remains in the early stages in terms of cloud service penetration and market size, with To B (business-to-business) growth representing a longer-term evolutionThe low valuation of China’s internet sector compared to its overseas peers suggests that the outlook for the cloud valuations of BAT (Baidu, Alibaba, Tencent) will be reassessed based on their respective scales and technological strengths.

As the "Big Tech Seven" in the US faces challenges, analysts are increasingly focusing on China's "Ten Tech Sisters", which include Alibaba, Tencent, Meituan, Xiaomi, BYD, JD.com, NetEase, Baidu, Geely, and SMIC

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According to recent analyses, these companies have collectively outperformed their US counterparts between the end of 2023 and February 12, 2025. From the start of this year until February 18, their stocks have risen an average of 27.5%, with Alibaba-W leading the pack with a whopping increase of 53.28%. In contrast, the average increase among the American "Tech Seven" stood at a mere 1.3%.

In stark comparison, American stocks have seen less than a 3% increase this year, while the Hang Seng Tech Index has surged nearly 30%. The individual performances of the "Big Tech Seven" remain tepid, with many stocks experiencing declinesOn February 21, a sell-off in US stocks revived concerns about growthMorgan Stanley’s Chief US Equity Analyst, Michael Wilson, highlighted factors such as the lagging effects of high interest rates and potential growth obstacles stemming from government efficiency cuts, tariffs, and immigration policiesThis commentary reinforces previous perspectives that the stock markets in the first half of 2025 might be more volatile than in the fall of 2024.

Wilson further noted that these factors explain why 6100 points have become a robust resistance level for the S&P 500. He maintains an optimistic stance on consumer services, which have enjoyed a 9% increase this year, contrasting with consumer goods that are influenced by tariffs, creating stronger support for service industry companies due to their better earnings revisions and pricing power.

Investors have begun to question the sustainability of the "American Exceptionalist" narrative regarding investment, a topic that has gained traction recentlyNotably, Europe and China are identified as the two strongest non-American markets currentlyInterest from overseas clients in China has primarily been concentrated around DeepSeek and in broader technology sectors.

Despite the strong performance of the "Big Tech Seven," their lofty valuations have made investors more selective

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Since the fourth quarter of last year, mutual funds and hedge funds began to reduce their holdings in these tech giants, with Tesla being a notable exceptionHowever, Tesla's performance has since deteriorated, with losses exceeding 10% year-to-date.

The market's focus is now shifting towards Nvidia’s upcoming earnings reportJerry Chen, a senior analyst at Gain Capital, commented that this would be the first performance announcement from Nvidia since the arrival of DeepSeek, and the market is keen to see the company’s forecast regarding its trajectory in the global "AI battle." To quell market anxiety, Nvidia needs to deliver strong performance and guidance.

Chen explained that Nvidia has exhibited a fluctuating range over the last eight months, and key focus areas now include the ongoing growth of its AI data center business and potential impacts from product delaysFurthermore, transitions in product lines could influence profit margins and supply chains, along with Nvidia's strategic assessment of AI application commercialization.

In contrast to the dynamic P/E ratios nearing 30 for American tech giants, the valuation advantages of China’s internet titans appear quite pronouncedBefore this recent upswing, some valuations were below 10 times earnings, but they are now hovering around 15. Morgan Stanley believes it is too early to reach definitive conclusions, mainly due to the higher quality of mid-cap stocks in the U.S., with the S&P 500 still showing the most robust earnings growth expectations globally.

Notably, Morgan Stanley raised its offshore market target price following a downgrade last November, now aiming at 24,000 points for the Hang Seng Index, 8,600 for the Hang Seng China Enterprises Index, and 77 for the MSCI China Index, while keeping its 2025-end target for the CSI 300 index unchanged at 4,200 points.

Wang Ying, the head of China equities at Morgan Stanley, states that the Chinese stock market, particularly the offshore segment, is undergoing a structural transformation leading to sustainable recoveries in return on equity (ROE) and valuations

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This reflects their recent transition from skepticism to cautious optimism regarding the continued improvement in the MSCI China performance.

He elaborated that unlike the industry boosts from macroeconomic recovery anticipated for 2024, advancements in large language models (LLMs) will prompt reassessment of independent cloud valuations for BATThe development of AI agents and applications is expected to accelerate due to increased penetration of AI across various sectors, enhanced user insights, and improved conversion ratesConsequently, a wider array of subscription-based models leveraging better conversion rates and AI services will likely emerge.

Alibaba's performance has seemingly bolstered investor confidenceInvestment banks widely agree that Alibaba's AI and cloud expenditure over the next three years will surpass that from the past decade, highlighting a substantial demand for AI applicationsJefferies noted that while macroeconomic conditions remain uncertain, the most surprising aspect of the earnings report was that CMR growth was driven by comprehensive promotion and service fees, with Taobao's immense traffic and dedicated promotion likely to sustain growthAdditionally, there were surprising positive developments with TTG's EBITDA returning to positive growth, and there are prospects for the historically loss-making international segment to turn profitable in the next fiscal year.

Cloud services hold immense significance for large models, especially during the training and inference phases of deep learning models, which demand substantial computational resources and storage spaceChong remarked that DeepSeek’s emergence is unveiling productivity opportunities through AI across various industries, which is already leading to a spike in demand for cloud servicesA wave of businesses is projected to transition to the cloud, underpinning valuable bargaining capabilities stemming from robust multi-service offerings that combine large model capabilities with cloud infrastructure.

Post Alibaba's earnings release, international investment banks adjusted their price targets upward, with Goldman Sachs lifting its Hong Kong stock target from HKD 114 to HKD 156, while Jefferies raised its target from HKD 156 to HKD 160.

In addition to Alibaba, Tencent’s stock has significantly rebounded, with significant activity noted on February 24 when it crossed the HKD 500 mark

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