Is the AI craze cooling? Chinese tech giants reveal growth concerns during earnings season.

(Asia-Pacific Financial Report) By early 2025, China's tech industry was showing signs of recovery. DeepSeek, an artificial intelligence company, emerged as a challenger to the dominance of American technology, fueling high market expectations for China's AI future. Officially, Chinese leader Xi Jinping publicly recognized the contributions of several entrepreneurs to technological innovation, driving tech stocks like Alibaba, Tencent, and JD.com to their biggest gains since 2020.

However, that enthusiasm is facing a real test with the release of the new quarter's financial reports.

Alibaba's recently released quarterly results fell short of market expectations, sending its stock plummeting by the most in over a month. Previously, Alibaba was widely considered a key beneficiary of China's artificial intelligence boom. Although JD.com and Tencent achieved their fastest revenue growth since the outbreak of the pandemic, investors reacted coldly to this "rebound" growth, sending both companies' shares tumbling on the day their earnings reports were released.

While a series of government fiscal stimulus measures have partially boosted consumption recovery and Alibaba's e-commerce division has performed well, overall market sentiment remains cautious. Major platforms like Meituan and Pinduoduo have yet to release their financial reports, but available data suggests the market may be more optimistic about consumer and technology profitability.

International developments are also unsettling investors. Donald Trump's renewed US-China trade frictions have heightened global uncertainty. In the domestic market, competition among top platforms is intensifying: Alibaba, JD.com, and Meituan continue to invest in areas like instant delivery, food delivery, and express delivery, squeezing margins in exchange for market share.

Charu Chanana, chief investment strategist at Saxo Bank, said: "This quarter's financial reports remind us that the market's optimistic expectations for China's consumption recovery and the speed of AI monetization may be brought forward. At present, China's large technology companies are still in the stage of structural transformation. If they want to achieve valuation recovery, relying solely on improving cost efficiency is far from enough."

Data shows that analysts have raised their profit forecasts for the Hang Seng Tech Index by more than 30% over the past year, significantly higher than the overall market. This increase is partly due to the prospects brought by artificial intelligence projects such as DeepSeek.

However, while most Chinese tech companies focus on the domestic market and are theoretically less susceptible to international tariffs—for example, Tencent generates nearly 90% of its revenue from mainland China—global trade policy volatility still weighs on consumer confidence. Maybank Securities head Kok Hoong Wong noted, "China's domestic consumption has shown some resilience, but investors remain cautious about the outlook amidst the international instability."

The intensity of industry competition is also a major concern. JD.com is attempting to pressure Meituan with its food delivery business, while Alibaba and JD.com continue to expand in express delivery services. This cash-burning competition reminds the market of a period when strict regulatory intervention was triggered, increasing the potential for policy risks.

"While China's economic fundamentals are gradually recovering, data shows that consumer recovery is still relatively slow," said Sat Duhra, investment manager at Janus Henderson Investors.

Regarding AI development, while DeepSeek's progress has sparked a reassessment of China's market capacity for technological innovation, most major platforms still don't explicitly state the direct contribution of AI to revenue in their financial reports. Executives at companies like Alibaba and Tencent generally note that AI can help optimize advertising, enhance e-commerce experiences, and produce content, but are more cautious about monetization.

In addition, Tencent is trying to ease market concerns about Nvidia's chip supply shortage. However, whether the United States will further restrict the export of high-end chips in the future remains one of the potential risk points.

Despite facing multiple challenges, the market's hope for Chinese technology companies to achieve long-term breakthroughs through artificial intelligence has not completely dissipated. Janus Henderson's Duhra said: "The progress of DeepSeek shows that China's scientific research investment in the past few years has begun to bear fruit. This gradually released technological potential remains the core support for the long-term investment value of the technology sector.