Outlook for Xi–Trump Meeting and Q1 Earnings of China’s Internet Sector

Overview

This Goldman Sachs Asia Insights briefing focuses on two themes: first, the upcoming Xi–Trump meeting this week, for which Goldman provides a baseline expectation—that China will increase purchases of U.S. goods to secure U.S. concessions on technology restrictions and tariffs—but notes low market expectations and limited likelihood of a comprehensive agreement; second, the Q1 earnings outlook for China’s internet companies, with scheduled releases from JD.com (Tuesday), Alibaba/10C (Wednesday), and Meituan (Friday). The report highlights key metrics investors should monitor—including cloud acceleration, AI capex pacing, changes in operating profitability, and gains/losses from equity investments (e.g., MiniMax, Zhipu AI). Overall, the report combines timely event commentary with earnings anticipation, offering a rapid sector-level scan.

Core views

**Xi–Trump Meeting:** This meeting follows China’s robust April export data. Goldman Sachs’ baseline expectation is that China will pledge increased purchases of U.S. agricultural products, energy, and manufactured goods, in exchange for U.S. easing of technology restrictions and modest tariff reductions. However, the report emphasizes that a ‘grand compromise’ remains unlikely and market expectations are already muted. **Q1 Earnings Outlook for China’s Internet Companies:** This week marks a concentrated earnings release period—JD.com (Tuesday), Alibaba/10C (Wednesday), and Meituan (Friday) will disclose Q1 results. Goldman Sachs recommends investors closely track the following dimensions: - Acceleration in cloud business performance; - Growth in AI-related capital expenditures (the report notes Chinese internet firms average 60% of operating cash flow allocated to AI capex, versus 100% for U.S. peers—indicating meaningful room for catch-up); - Changes in operating profitability; - Gains or losses arising from valuation changes in equity investments (e.g., portfolio companies such as MiniMax and Zhipu AI). Among covered companies, PDD is expected to be the sole firm reporting significant operating profit growth, with Goldman Sachs forecasting a +37% increase. **Investor Sentiment and Sector Ranking:** The report observes that investor interest in China’s internet sector remains subdued, yet consensus views hold that fundamentals are not as weak as feared. In its April sector report, Goldman Sachs adjusted its subsector rankings, upgrading e-commerce and mobility from third place (previously grouped with gaming and entertainment) to second place—reflecting relatively stronger near-term opportunity in these subsectors.

Analysis framework

The report employs a hybrid analytical approach combining event-driven analysis and earnings preview. It models potential outcomes of the high-profile political event (the Xi–Trump summit)—baseline scenario versus ‘grand compromise’—while flagging critical financial metrics for imminent internet company earnings releases. At the sector level, it uses comparative benchmarking—contrasting Chinese internet firms’ AI capex as a share of operating cash flow (60%) with U.S. peers (100%)—to highlight China’s AI infrastructure investment gap and upside potential. Additionally, the re-ranking of subsectors (e-commerce/mobility elevated to second place, gaming/entertainment downgraded to third) reflects relative value judgments grounded in evolving fundamentals and growth momentum.

Methodology notes

• Event-Based Game Theory & Behavioral FinanceEvent-driven analysis

  Event-Driven Analysis

  The report treats the upcoming leader-level summit as a pivotal event, pre-defining several plausible outcomes (baseline scenario, grand compromise, low market expectations) and analyzing associated policy implications (tariffs, technology restrictions) to provide a structured framework for market interpretation.

• Sector/Industry Analytical FrameworkSupply-demand framework

  Demand-Side Forecasting and Supply-Side Measures

  In assessing the U.S.–China trade outlook, the report implicitly applies a supply–demand lens: China increasing purchases (demand-side stimulus) of U.S. agricultural products, energy, and manufactured goods is framed as a quid pro quo for U.S. relaxation of technology-related constraints (supply-side easing). This constitutes a classic interest-exchange analysis.

• Corporate Fundamentals & Financial FrameworkFree cash flow analysis

  Capital Expenditure as a Share of Operating Cash Flow

  By calculating AI-related capex as a percentage of operating cash flow for Chinese internet firms (60%) and comparing it to U.S. peers (100%), the report reveals the relative intensity—and latent elasticity—of AI infrastructure investment in China. This metric is commonly used to gauge corporate investment aggressiveness and cash flow pressure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Alibaba (09988.HK)

  Q1 earnings issuer; key focus areas include cloud acceleration, AI capex, and operating profitability

  Strengths

  Market-leading cloud business; large-scale AI investment

  Comparison

  Reporting alongside JD.com and Meituan; all three require scrutiny of cloud growth and AI capex

• JD.com (09618.HK)

  Q1 earnings issuer; reporting Tuesday

• Meituan (03690.HK)

  Q1 earnings issuer; reporting Friday

Key data

• AI Capital Expenditure as Share of Operating Cash Flow (Chinese Internet Firms, Average)60%U.S. peers average 100%, indicating comparatively lower AI investment intensity in China and remaining catch-up potential
• PDD Operating Profit Growth (Goldman Sachs Forecast)+37%Expected to be the only Chinese internet company reporting materially higher operating profit
• China’s April Export DataStrongServes as backdrop to the Xi–Trump meeting; strong export performance

Impact & implications

The report suggests that if the Xi–Trump meeting proceeds along Goldman Sachs’ baseline path—increased Chinese procurement and U.S. easing of technology restrictions and select tariffs—it could ease U.S.–China trade tensions and provide modest support to market sentiment. However, the low probability of a ‘grand compromise’ warrants restrained expectations. For China’s internet sector, the earnings season will test the effectiveness of cloud and AI investments, as well as progress on operating profitability. Investor interest has reached near-record lows, but better-than-expected results may generate positive surprises and valuation re-rating opportunities. Goldman Sachs’ upward revision of e-commerce and mobility subsectors signals their relatively stronger earnings-driven potential.

What to watch

• Outcome of this week’s Trump–Xi trade negotiations—specifically whether the baseline scenario materializes (increased Chinese procurement, eased U.S. technology restrictions and tariffs).
• Q1 earnings metrics from JD.com, Alibaba, and Meituan—including cloud revenue growth, AI capex magnitude, operating profit, and equity investment mark-to-market gains/losses.
• Whether PDD achieves its projected +37% operating profit growth.
• Ongoing impact of U.S.–China relations on market sentiment.