Goldman forecasts differentiated 1Q results for China internet: cloud and AI stand out, but platform profits are under pressure short term
AI summary card
Goldman forecasts differentiated 1Q results for China internet: cloud and AI stand out, but platform profits are under pressure short term
The report expects Tencent, Alibaba, PDD, Meituan and JD to show robust but uneven 1Q earnings performance, with investors should focus on AI capex, cloud growth, quick-commerce/food-delivery margin narrowing, and profit recovery in the second half.
- Goldman expects total China internet segment profits for the March quarter to decline 28% year-over-year, but sees 2026E/2027E profit growth recovering.
- Cloud is the key bright spot, with Alibaba Cloud March-quarter revenue expected to rise 40% year-over-year, driven by token demand and Agentic AI.
- AI spending is creating profit pressure, especially at Alibaba and Meituan; Tencent and PDD are still expected to post adjusted operating profit growth.
- Improvements in quick-commerce and food-delivery unit economics could be an important positive setup for Meituan, JD and Alibaba in 2Q and 2027-2028E.
- After mega-cap platforms have fallen 9%-26% year-to-date, the report argues the risk-reward setup is better in 2Q and the second half.
Report interpretation
Overview
This is Goldman’s forward-looking and commentary report on 1Q results for major China internet platforms, covering Tencent, Alibaba, PDD, Meituan and JD. The report expects sector revenue to remain robustly growing, while profit is pressured by AI investment, quick-commerce spending and competition in local life; at the same time, accelerated cloud revenue, mark-to-market gains from AI model investments, narrowing quick-commerce/food-delivery losses, and second-half trading platform profit recovery are key positive factors to monitor.
Core views
The core view is "short-term earnings divergence, longer-term set-up improvement." Goldman expects Tencent’s games, advertising and adjusted operating profit to grow 15%, 17% and 10% year-over-year respectively; Alibaba’s cloud growth to be 40%, but group adjusted EBITA to fall 84% year-over-year; PDD’s adjusted EBIT to rise 37% year-over-year on a low base; Meituan’s adjusted EBIT to fall 178% year-over-year into a loss; JD’s adjusted EBIT to fall 81% year-over-year. Goldman continues to favor Cloud & Data Centers, then eCommerce & Mobility, and then Games & Entertainment.
Analysis framework
The report combines Goldman forecasts, Visible Alpha consensus data, business segment trends, cloud provider capex and revenue conversion, AI token demand, food-delivery/quick-commerce unit economics, platform competitive landscape, and an SOTP valuation framework to assess the key 1Q results, earnings-call focus points, target prices and risks for major China internet companies.
Methodology notes
sum of the parts valuation
The report applies 12-month SOTP target prices to Tencent, Alibaba, PDD, Meituan and JD, summing core business, cloud, Temu, quick-commerce, and local services segments using segment-appropriate multiples or assumptions.
comparison of Goldman estimates versus consensus
The report compares Goldman estimates with Visible Alpha consensus to identify differences in 1Q and full-year revenue, profit, segment growth and margin.
growth, financial returns, valuation multiples and composite factor
Goldman Sachs Factor Profile compares a stock’s growth, financial returns, valuation multiples and composite characteristics via percentile ranking versus the market and industry peers.
probability score of being a takeover candidate
Goldman uses a 1-to-3 M&A rank to assess the probability that a covered company could be a takeover target, where 1 means high probability, 2 means moderate probability, and 3 means low probability.
Goldman financial and forecast database
Quantum is Goldman Sachs’ proprietary database for accessing financial statement history, forecasts and ratios, supporting both single-company analysis and cross-industry peer comparisons.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Tencent Holdings (0700.HK)Core coverage name; Buy maintained
- Strengths
- Games, advertising and FBS growth remain resilient, and AI ad targeting and Weixin app-level AI agents may strengthen the ecosystem moat.
- Weaknesses
- Rising AI-related costs could pressure margins, and capex strategy and domestic AI hardware supply still need to be monitored.
- Comparison
- Compared with Alibaba’s “all-in” zero-FCF capex path, Tencent’s strategy is described as more balanced.
- Risks
- Intensifying ad competition, delays in game approvals or launch, FinTech and cloud growth below expectations, and reinvestment risk.
- Alibaba Group (BABA/9988.HK)Core coverage name; Buy maintained
- Strengths
- Cloud revenue is expected to rise 40% year-over-year, supported by token demand, MaaS and enterprise platform momentum; AI investments may enhance long-term cloud pricing power.
- Weaknesses
- CMR growth is only expected at +1%, and heavy quick-commerce investment and AI capex are causing a sharp decline in group adjusted EBITA.
- Comparison
- Cloud growth is compared with Google Cloud, AWS and Azure, with the report positioning Alibaba Cloud as being in acceleration.
- Risks
- GMV growth below expectations, weaker monetization in retail, underperformance in execution of strategic investments, and a slowdown in cloud revenue growth.
- PDD Holdings (PDD)Core coverage name; Buy maintained
- Strengths
- Adjusted EBIT is expected to rise 37% year-over-year, cash flow is strong, and domestic e-commerce and Temu retain scale advantages.
- Weaknesses
- Temu faces Europe tariffs and a transition to local-warehouse/local-merchant models, while domestic low-price e-commerce competition is intensifying.
- Comparison
- Compared with Alibaba and Meituan, PDD is stronger on 1Q profit growth; however, its AI capex strategy is more conservative.
- Risks
- Online marketing revenue below expectations, geopolitical and tariff pressure, Douyin and Alibaba low-price ad-tech competition, reinvestment dragging on profits, and limited segment disclosure.
- Meituan (3690.HK)Core coverage name; Buy maintained
- Strengths
- If food-delivery unit economics continue to improve, they would support profit recovery in 2Q and 2027-2028E; local life still has GTV and traffic-entry advantages.
- Weaknesses
- Adjusted EBIT is expected to turn into a much larger loss in 1Q; local services are under pressure from competition such as Douyin, and Keeta expansion is increasing investment intensity.
- Comparison
- Similar to JD and Alibaba, quick-commerce/food-delivery loss narrowing is a key variable; however, Meituan is more sensitive to competition in local services.
- Risks
- Worsening competition, labor-cost inflation, tighter food safety or regulatory scrutiny, and Keeta spending above expectations.
- JD.com (JD/9618.HK)Core coverage name; Buy maintained
- Strengths
- JD Retail profit remains supported, new-business losses are expected to narrow sequentially, and its supply chain and 1P retail capabilities are potential AI-agent era moats.
- Weaknesses
- 1Q adjusted EBIT is expected to decline sharply year-over-year, with new-business investment and Joybuy expansion in Europe adding pressure.
- Comparison
- Compared with Meituan, JD is still in an earlier stage of investing in food delivery and new businesses; compared with Alibaba/PDD, JD’s 1P supply-chain capabilities are more pronounced.
- Risks
- E-commerce and food-delivery competition stronger than expected, GMV slowdown, high base in electronics and home appliances, JD Retail margin volatility, and pricing/user-experience investment pressures on profit.
Key data
- China internet sector March-quarter profit-28% yoyGoldman expects total profit to be down 28% year-over-year, versus -23% and -35% in the prior two quarters.
- Alibaba Cloud revenue growth+40% yoyThe report views stronger token demand and Agentic AI as driving faster cloud revenue growth, making it one of the main 1Q highlights.
- Tencent 1Q forecastRevenue +11% yoy; adj. EBIT +10% yoy to RMB 76.2bnGames revenue and advertising revenue are expected to rise 15% and 17%, respectively.
- Alibaba 4QFY26E forecastRevenue +4% yoy; adj. EBITA -84% yoy to RMB 5.2bnCloud growth is strong, but quick-commerce investing and AI spending are weighing on profit.
- PDD 1Q forecastRevenue +13% yoy; adj. EBIT +37% yoy to RMB 25.0bnLow base effects and operating leverage are driving adjusted EBIT growth.
- Meituan 1Q forecastRevenue +6% yoy; adj. EBIT -178% yoy to RMB -7.8bnCompetition in local services, plus quick-commerce and international expansion investment, are dragging profit.
- JD 1Q forecastRevenue +3% yoy; adj. EBIT -81% yoy to RMB 2.2bnNew business losses are expected to be RMB -10.4bn, narrowing from RMB -14.8bn in 4Q25.
- Mark-to-market gains from AI model companiesAlibaba about HK$31bn; Tencent about HK$11bn; Meituan about HK$12bnEstimated 1Q mark-to-market gains from investments in AI model companies such as MiniMax and Zhipu.
- Mega-platform YTD stock performanceabout -9% to -26%The report argues valuation multiple compression makes the risk-reward setup more attractive in 2Q and in the second half.
Impact & implications
The report’s investment implication is constructive: while 1Q profits are pressured in the short term and AI capex and platform competition remain key points of divergence, faster cloud growth, AI token demand, narrowing quick-commerce/food-delivery losses and stronger cloud backlog and pricing recovery at U.S. hyperscalers are positive for China internet platforms. If 2H26 trading-platform profit recovery materializes year-over-year, valuation and earnings expectations for the sector may gain support.
Risks
- AI capex comes in higher than expected and compresses free cash flow or margins.
- Cloud growth or token demand falls short of expectations, causing cloud pricing and margin improvement to disappoint.
- Competition in e-commerce, local life and food delivery intensifies, harming GMV, take rate, ad monetization and margins.
- Global expansion of Temu, Keeta and Joybuy faces uncertainty in tariffs, regulation, geopolitics and return on investment.
- Execution risks remain in game launches, game-license approvals, ad load rates, fintech and cloud growth.
- Food safety, platform regulation and rising labor costs could weigh on platforms such as Meituan, PDD and JD.
What to watch
- Tencent earnings-call commentary on AI hyperscaler strategy, Weixin app-level AI agents, ad acceleration and gaming pipeline.
- Alibaba Cloud June-quarter outlook, MaaS ARR, Token Hub Wukong enterprise platform, cloud price increases and cloud margins.
- The pace of loss narrowing in Alibaba quick-commerce, Taobao-Tmall FY27 profit outlook and CMR growth.
- PDD Temu’s transition in local warehousing and local merchant models under changes in European tariff policy, and shareholder return policy.
- Meituan food-delivery unit economics, Douyin local-life competition, and Keeta investment intensity in Latin America.
- JD food-delivery unit-economic trajectory, Joybuy rollout across six European countries, new-business losses and capital allocation.
- Hyperscaler capex versus operating cash flow for China internet, domestic chip substitution, and AI server and memory costs.