AI Investment Reshapes the Competitive Landscape; Top Picks Are Alibaba, Tencent, Meituan and J&T
AI summary card
AI Investment Reshapes the Competitive Landscape; Top Picks Are Alibaba, Tencent, Meituan and J&T
E-commerce growth and AI chatbot advertising spending remain weak, but more rational platform competition, progress in cloud and AI commercialization, and high logistics growth create structural investment opportunities.
- Competition in China’s large language model market is intense, and the market is expected to ultimately consolidate into three to four leading players with strong capabilities.
- Since 2Q26, major platforms have shifted resources from consumer-facing chatbots to enterprise-level agents, with chatbot promotion spending cooling significantly, potentially weighing on advertising growth at Bilibili and Weibo.
- China’s e-commerce growth slowed from 7.5% in 1Q26 to 2.3% in 2Q26, and is expected to remain pressured by weak consumer confidence in 2H26.
- Alibaba’s e-commerce business is being viewed as a cash-flow engine supporting AI investment, with signs of margin improvement in cloud computing, international commerce and instant retail.
- Tighter regulation of prescription drugs and GLP-1 sales may raise compliance costs for online pharmacies and put pressure on JD Health’s full-year revenue guidance.
- Meituan and J&T benefit from a more rational competitive environment, and their earnings and volume performance may exceed market expectations.
Report interpretation
Overview
Ahead of the second-quarter results announcements of China internet companies, the report assesses the latest trends in artificial intelligence, e-commerce, local services, online healthcare, advertising and logistics. The core view is that China’s large language model market remains in a stage of intense competition and consolidation, with leading platforms reallocating resources from consumer chatbots to enterprise-level agents. Meanwhile, weak consumption is pressuring e-commerce growth, but AI investment is also prompting platforms to place greater emphasis on the profitability of non-AI businesses, thereby easing competition in areas such as instant retail, local services and logistics.
Core views
Independent AI labs DeepSeek and Moonshot are currently in leading positions, Alibaba’s Qwen is in the first tier, while Tencent and ByteDance are still catching up. China’s open-weight model ecosystem is conducive to the popularization of foundation models, but it puts pressure on AI applications that rely on closed-source subscription revenue, with products such as Kling in video generation facing intensified competition. In e-commerce, growth in 2H26 is expected to remain sluggish, and the market’s focus on Alibaba has shifted from revenue growth to e-commerce cash flow, AliCloud margins, MaaS growth and T-Head development. Tencent’s WeChat agents have long-term monetization potential by connecting more than 1 billion users with service providers, but Hunyuan still needs to narrow the gap with leading models. Meituan may benefit from more rational competition in instant retail and local services; J&T benefits from strong volumes in Southeast Asia and other overseas markets. In online healthcare, tighter regulation of prescription drugs and GLP-1 may constrain JD Health’s growth and increase compliance costs.
Analysis framework
The report combines channel checks, industry expert views, company guidance, national statistics and relative valuation to cross-validate demand, competition, regulation, profitability and potential catalysts across subsectors, using forward price-to-earnings ratios as the main valuation tool for target prices.
Methodology notes
Assess the potential consolidation direction of the large language model industry based on model capabilities, the open-weight ecosystem, computing resource allocation, cloud platform synergies and commercialization paths.
The report expects China’s foundation model market may ultimately concentrate among three to four leaders, and compares the relative positions of independent AI labs and large internet platforms.
Use industry channels and expert views to verify advertising spending, competitive intensity, profit targets, regulatory enforcement and volume trends.
Channel information shows chatbot promotion spending has cooled significantly, Douyin is placing greater emphasis on profitability, and online healthcare platforms have also strengthened qualification reviews for prescription drug purchases.
Use forecast price-to-earnings ratios to compare target price valuations with current valuations.
The target prices for Alibaba, Tencent, Meituan and J&T correspond to 22x, 20x, 33x and 15x forecast price-to-earnings ratios, respectively.
Identify short- and medium-term share price catalysts around earnings guidance, margins, product iterations, business spin-offs and industry conferences.
Key events include Alibaba’s MaaS and cloud margin guidance, potential listing progress for T-Head, Tencent’s next-generation Hunyuan model, and J&T’s potential upward revision to volume guidance.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Alibaba (BABA US)Top pick and Buy rating
- Strengths
- Has full-stack AI capabilities covering chips, cloud infrastructure and large language models; Qwen is in the first tier; MaaS growth is strong; and margins in non-AI businesses are improving.
- Weaknesses
- E-commerce revenue growth remains affected by weak consumption, and continued AI investment requires support from e-commerce cash flow.
- Comparison
- Compared with other large platforms, Alibaba provides more complete exposure to the AI value chain among China internet companies.
- Risks
- MaaS growth or cloud margins fall short of expectations, e-commerce remains weak, or the payback cycle for AI investment is prolonged.
- Tencent (700 HK)Top pick and Buy rating
- Strengths
- Has the WeChat ecosystem with more than 1 billion users; WeChat agents have long-term potential to connect users and service providers and collect commissions; WorkBuddy already has strong market appeal.
- Weaknesses
- Hunyuan still lags leading independent models, and continued AI investment may pressure FY26 profit growth.
- Comparison
- Its user ecosystem and application distribution capabilities are outstanding, but its foundation model strength currently lags DeepSeek, Moonshot and Alibaba’s Qwen.
- Risks
- The next-generation Hunyuan fails to narrow the capability gap, agent competition intensifies, or AI spending exceeds expectations.
- Meituan (3690 HK)Top pick and Buy rating
- Strengths
- Food delivery and in-store businesses benefit from more rational competition, and 3Q26 food delivery unit economics may remain positive.
- Weaknesses
- Summer subsidies and instant retail competition may still affect near-term profits.
- Comparison
- Compared with market expectations that 3Q26 unit economics will turn negative, the report expects its profitability may be better.
- Risks
- Competitors resume aggressive subsidies, in-store business competition deteriorates, or consumer demand weakens further.
- J&T (1519 HK)Top pick and Buy rating
- Strengths
- High volume growth in Southeast Asia and other overseas markets, cost optimization and platform price support help maintain unit economics, and more rational competition in China supports earnings recovery.
- Weaknesses
- Rising fuel costs may erode profits.
- Comparison
- 1H26 growth in Southeast Asia and other overseas markets was significantly higher than the original FY26 guidance, with potential for upward guidance revisions.
- Risks
- Fuel prices rise, overseas volume growth slows, or price support weakens.
- JD Health (6618 HK)Buy rating, but full-year revenue faces downside risk
- Strengths
- Second-quarter online pharmaceutical sales and total revenue are still expected to maintain relatively fast growth.
- Weaknesses
- Lower exposure for GLP-1 products and tighter purchase qualification reviews, as well as requirements for manual pharmacist prescription review, increase transaction friction and compliance costs.
- Comparison
- The second-quarter impact is limited, but FY26 management guidance may be difficult to fully achieve.
- Risks
- Further tightening of regulation on prescription drugs and nutritional products, or growth in pharmaceuticals and nutritional products below management assumptions.
- Bilibili (BILI US) and Weibo (WB US)Neutral ratings and pressure on advertising growth
- Strengths
- Previously benefited from rapid growth in AI chatbot advertising spending.
- Weaknesses
- After major platforms shift resources to enterprise-level agents, chatbot promotion spending has cooled significantly.
- Comparison
- Compared with platforms that have proprietary AI cloud and model commercialization capabilities, the two companies are more dependent on external advertising budgets.
- Risks
- AI advertising budget contraction exceeds expectations and drags on advertising revenue growth.
- Kuaishou (1024 HK)Neutral rating
- Strengths
- Kling is one of China’s leading text-to-video products.
- Weaknesses
- The closed-source business model faces competitive pressure from open-weight video models.
- Comparison
- Seedance 2.5 may remain resilient with stronger performance, while Kling faces higher risk of impact from open-weight models such as MiniMax H3.
- Risks
- The model capability gap widens, or open-weight competition pressures pricing and subscription monetization.
Key data
- China e-commerce market growth2Q26 year-on-year growth of 2.3%Below 7.5% in 1Q26, indicating increased pressure from consumer demand and a high base.
- Alibaba China e-commerce marginJune-quarter EBITA margin may rise by 1.8 percentage points year on yearEstimated on a basis excluding instant retail.
- Alibaba MaaS guidanceARR above CNY30bn as of March 2027The report believes this guidance may be conservative.
- AliCloud margin guidanceEBITA margin of 11% to 12% for the June and September quartersThe previous quarter was 8% to 9%, and high-margin MaaS services and pricing power may drive further expansion.
- JD Health second-quarter forecastOnline pharmaceutical sales up about 25% year on year, total revenue up about 16% year on yearThe impact of new rules is expected to be limited in the second quarter, but there is downside risk to full-year guidance.
- JD Health FY26 revenue guidanceYear-on-year growth of about 18% to 20%This guidance may not yet fully reflect tighter regulation of nutritional products and prescription drugs.
- J&T volume growth1H26 parcel volume up 25% year on yearVolumes in Southeast Asia and other overseas markets increased 71% and 120% year on year, respectively.
- Alibaba target price and valuationUSD178, corresponding to 22x CY27F P/EThe current valuation stated in the report is about 16x.
- Tencent target price and valuationHKD727, corresponding to 20x FY27F P/EThe current valuation stated in the report is about 13x.
- Meituan target price and valuationHKD109, corresponding to 33x FY27F P/EThe current valuation stated in the report is about 28x.
- J&T target price and valuationHKD14, corresponding to 15x FY27F P/EThe current valuation stated in the report is about 11x.
Impact & implications
AI capital expenditure is reallocating resources and profit pools in the internet industry: cloud computing, MaaS, agents and chips are expected to receive more investment, while consumer chatbot marketing and some non-core expansion are cooling. For investors, platforms with full-stack AI capabilities, cash-flow support and a foundation for cloud commercialization have greater advantages; more rational competition benefits unit economics improvement at companies such as Meituan and J&T. Conversely, platforms reliant on AI advertising spending, closed-source applications affected by open-weight models, and online healthcare platforms facing tighter prescription drug regulation have higher downside risks.
Risks
- China’s consumer confidence remains weak, causing e-commerce growth to fall short of expectations.
- AI capital expenditure remains high but commercialization progress falls short of expectations, pressuring platform profits and cash flow.
- Open-weight models intensify price competition and weaken the subscription monetization ability of closed-source AI applications.
- Regulation of prescription drugs, GLP-1 and nutritional products tightens further, increasing compliance costs and transaction friction for online healthcare platforms.
- Local governments reduce, delay or suspend tax rebates for the high-tech industry, pushing up the effective tax rates of internet companies.
- Aggressive subsidies and price competition re-emerge in instant retail, local services or the logistics industry.
- J&T faces risks from rising fuel costs and a slowdown in overseas volume growth.
What to watch
- Whether Alibaba raises its MaaS service guidance and whether ARR can exceed CNY30bn ahead of schedule.
- Whether AliCloud EBITA margin can exceed the existing guidance of 11% to 12%.
- Further information on T-Head’s direct external chip sales and potential listing timetable.
- Alibaba’s annual cloud computing conference to be held from September 22 to 24, 2026.
- Whether Tencent’s next-generation Hunyuan model, expected to launch around October 2026, can narrow the gap with leading models.
- The official launch of WeChat agents, service provider onboarding and commission monetization model.
- Whether Meituan’s food delivery unit economics in 3Q26 can remain positive.
- Whether J&T raises its FY26 volume guidance for Southeast Asia and other overseas markets.
- Whether JD Health lowers its FY26 revenue growth guidance, and the actual impact of new rules on pharmaceutical and nutritional product sales.
- The impact of cooling chatbot advertising spending on advertising revenue at Bilibili and Weibo.
- Changes in industry tax rebate policies and trends in internet companies’ effective tax rates.