YWR: Two China Tech Trades

Tencent (700 HK) and Baidu (BIDU) look good here.

NASDAQ has ripped a hole in the sky, meanwhile Chinese tech stocks are on their lows.

In the US chip spend is booming. Capex is booming, and cloud revenues are booming too. Revenue growth at the top 3 clouds (AWS, Azure and Google Cloud) is accelerating from 20% growth to 30% growth. The AI’ification of US and European workflows is underway.

So if AI is good for US tech, why isn’t it good for Chinese tech stocks?

Instead of bullishness, we have Tencent, the heart of Chinese tech commerce (payments, games, social media, cloud, online advertising) trading at one of its lowest P/E multiples ever (13.6x).

And there you have a paradox.

Chinese technology in AI and Robotics is going to leapfrog us, and yet nobody wants to own it.

I read Tim Boldt’s takeaways from his visit to the Prosus tech week in China and it genuinely makes me anxious we in the West are not moving fast enough.

The cliché about China is that it copies. What I saw was a country determined not merely to imitate, but to lead - in academic output, in green energy, in EVs, in autonomous driving, in robotics, in agentic workflows, and in the commercialisation of AI. Whether it wins across all those fronts is almost secondary. The important thing is that it is no longer psychologically organising itself as a fast follower. It intends to be first.

-Timo Boldt, Founder of Gousto.

Fear of Involution

But investors are not irrational. They know China is great at tech, but they also know the rule of thumb that nobody makes any money in China. Yes, there will be drone food delivery, autonomous taxis, household robots, NVIDIA level chips… and meanwhile earnings for all of these companies will be negative.

And there is some truth to this. Online retail earnings for Alibaba, Meituan and JD.com have been a bloodbath. And the paid search business for Baidu has been terrible too. These are major tech stocks in the KWEB ETF and it has dragged down interest in Chinese tech.

But I think the baby is getting thrown out with the bathwater, especially with Tencent and Baidu.

Tencent

Tencent is one of the all time greats. It took me a while to appreciate their interlocking business model of social media, games, online advertising and payments combined with WeChat. It has tremendous network effects and why their earnings growth has been consistent over the years.