Morgan Stanley expects a brighter outlook for Chinese tech stocks this year, with Tencent as the industry's top pick

Morgan Stanley published a report on the outlook for Chinese technology stocks this year. Following last year's "DeepSeek Moment," the bank believes that the development path of AI in China will be brighter by 2026, driven by both supply and demand. In addition to AI, the overseas expansion of domestic internet companies has also become an important factor in addressing macroeconomic, competitive, regulatory, and geopolitical risks.

The bank has given an "overweight" rating to stocks in the industry, including Tencent (00700.HK), Alibaba (BABA.US), Pinduoduo (PDD.US), and Tencent Music (TME.US), with Tencent being the top pick in the industry. It has assigned "underweight" or "in line with the market" ratings to JD (JD.US), Bilibili (BILI.US), Kuaishou (01024.HK), and Baidu (BIDU.US).

Morgan Stanley pointed out that as the domestic market matures and faces deflationary pressures, overseas markets have become a new engine for growth. Various sectors, including gaming, cross-border e-commerce, food delivery, ride-hailing, OTA, cloud services, autonomous taxi services, and AI model applications, are accelerating their overseas expansion. By 2025, overseas revenue is expected to exceed 10%, with continued growth anticipated in the next 2 to 3 years.

However, the bank also cautioned that weak domestic consumption, intense industry competition, and regulatory risks still need to be monitored. The competition brought about by ByteDance's ongoing "disruption" in e-commerce, cloud, music, and AI, along with recent antitrust investigations into Trip.com by domestic regulators, has once again raised market concerns