“No Reason to Scale Back AI Investment… ‘Weakness’ in Chinese Tech Stocks Presents Buying Opportunity” [Weekend Money]

“Big Tech CAPEX in China Nearly Reaches Last Year’s Annual Level in H1”
“Cash Flow Pressure Has Grown, But No Short-term Constraints on Investment”

Following Alibaba’s announcement of a new share allocation, concerns have been mounting over the sustainability of capital expenditures (CAPEX) among Chinese companies. However, according to analysts in the securities industry, investment in artificial intelligence (AI) by China’s big tech firms is expected to continue. This outlook is supported by both sufficient cash reserves and the demonstrated improvement in the profitability of AI businesses. As a result, there is a diagnosis that the recent weakness in technology stocks should be seen as an opportunity to increase exposure to AI-related stocks.

This week, Hanwha Investment & Securities published a report on Chinese equities titled “Mid-term Review of AI Investments: 2Q Shows Growing Confidence in Monetization.” The report assessed ongoing AI investments by China’s big tech companies. Researcher Park Yoojin of Hanwha Investment & Securities, who authored the report, stated, “The profitability of AI infrastructure and the potential for investment capital recovery are likely to support further AI investments in China.” She predicted, “AI investment by Chinese big tech companies will continue.”

One of the main factors behind the recent decline in Chinese technology stocks has been Alibaba’s announcement of its new share allocation. Alibaba’s move to secure funds for further AI investment sparked concerns in the market about whether large-scale CAPEX by Chinese companies can be sustained going forward. However, Researcher Park judged that, given the robust cash generation and cash reserves of major big tech companies, the likelihood of AI investment being restricted in the short term is low.

The combined CAPEX of Alibaba, Baidu, and Tencent in the first half of 2026 reached 196.6 billion yuan, accounting for 91.4% of their total annual spending from the previous year. Alibaba increased its CAPEX due to higher CPU procurement aimed at expanding its AI agent customer base and a rise in semiconductor component prices. Tencent also identified 2026–2027 as a period of intensive early investment for its AI-native businesses.

Researcher Park acknowledged that aggressive AI investment by China’s big tech companies is putting pressure on their cash flows, but she also analyzed that there is limited risk of any immediate reduction in such investments. She explained, “Tencent is generating enough operational cash flow to manage its AI investment, and both Baidu and Alibaba can cover any shortfall in investment resources with their cash and cash equivalents for the next two years.”

According to the report, Tencent’s second-quarter free cash flow (FCF), excluding computing advance payments, stood at 37.6 billion yuan. While Alibaba and Baidu may find it difficult to fully cover CAPEX with their operational cash flows alone, they still have additional investment capacity when considering their cash holdings. At the end of the second quarter, their cash reserves amounted to 1.9 times the value of the CAPEX that was not covered by operational cash flow over the past year.

In particular, Researcher Park emphasized that growing confidence in monetizing AI investments is a key factor supporting the sustainability of future AI investments. She noted, “Tencent and Alibaba both highlighted the profitability of their AI businesses and their confidence in recovering investments during their second-quarter earnings releases.” She continued, “Based on average gross profit margin, Alibaba can recoup its AI-related CAPEX within three years, and this period can be shortened to less than 2.5 years through improvements in AI product GPM and expanded in-house chip utilization.”

Alibaba’s AI Cloud & Computer Services adjusted EBITA in the second quarter was 5.63 billion yuan, up 133% year-on-year. The adjusted EBITA margin also improved from 7.2% to 11.6%. This indicates that not only is the scale of AI-related business growing, but its profitability is also improving.

Investors should also pay attention to the confirmed decline in Chinese technology stocks following Alibaba’s new share allocation announcement. Researcher Park stated, “Since share prices have not yet recovered to their pre-announcement levels, now is a good time to take advantage of this as an opportunity to incrementally buy technology stocks,” adding that investors should consider increasing their allocation to AI-related stocks.

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