UBS China internet research head Fang Jinchong said at a Shenzhen briefing that
the China internet sector is down about 20% YTD; offshore investors have moved
from underweight toward neutral but remain cautious on H2 macro and cash flow.
He estimates aggregate profit expectations for major internet incumbents have
fallen from roughly 680bn yuan at the start of the year to about 600bn yuan in
August, driven by higher AI spending, user-acquisition promotions and increased
R&D. He said AI has materially reduced production costs in advertising and
short-form dramas but so far shows limited revenue conversion. On US–China AI,
he estimates the model-capability gap has narrowed to about 3–6 months: China
leads on applications and ecosystem, the US on base models and hardware.
Valuation dispersion between large and small firms reflects the industry cycle,
with pricing power currently concentrated upstream but likely to shift back to
downstream players with users and scenarios as upstream capacity is released
over coming years. He favors cloud vendors, large-model companies and online
gaming.
