In "The Big Banks," Citigroup predicts that the AI competition between China and the U.S. will escalate by 2026, with Tencent, Alibaba, and six other stocks as top picks

Citi published a research report indicating that the Chinese internet industry will perform strongly in 2025, with DeepSeek leading the domestic AI trend. It is expected that the upward momentum will continue into 2026, especially as competition in AI and generative video applications intensifies. China and the United States will engage in direct competition globally in the fields of AI models, applications, cloud services, and autonomous driving (Robotaxi).

Despite facing geopolitical challenges, China's gaming and e-commerce sectors continue to grow rapidly in overseas markets, but the bank holds a cautious outlook on the domestic e-commerce sector. In terms of investment strategy, Citi prefers sectors related to AI, gaming, and health, predicting that industry revenue and adjusted EBIT will grow by 12% and 29% year-on-year, respectively, and believes that China is likely to lead the global implementation of AI applications.

In terms of valuation, the bank pointed out that the sector's current forecasted adjusted price-to-earnings ratio for 2026 is 16.1 times (13.7 times for 2027), which represents a discount of about 40% compared to its U.S. peers, indicating that the valuation remains attractive.

Citi listed six top picks for 2026, including Tencent (00700.HK), Xiaomi (01810.HK), Alibaba (09988.HK), NetEase (09899.HK), Kuaishou (01024.HK), and JD Health (09618.HK), and specifically highlighted optimism for Alibaba's cloud business, Tencent's AI applications, and Xiaomi's consumer-grade AI devices. (ec/)