Chinese internet stocks have been under continuous pressure since the beginning of the year. After completing its earnings season review, Goldman Sachs maintains its differentiated allocation strategy for three sub-sectors, prioritizing cloud computing and data centers, upgrading e-commerce and travel to second place, and reiterating its rating for gaming and entertainment.
According to The Wind trading desk, Goldman Sachs' Ronald Keung team, in its latest report released on April 2, believes that the current median P/E ratio for the Chinese internet sector is around 14 times, with moderate profit growth expectations. Goldman Sachs believes that sector profit recovery or narrative shifts—such as the revaluation of AI model/chip infrastructure, the revaluation of overseas business, and shareholder returns—will be key drivers of subsequent stock performance.
Goldman Sachs upgraded the e-commerce and travel sub-sectors from fourth to second place, citing historically low valuations for related stocks; it expects profits for Alibaba, JD.com, and Didi to achieve year-on-year recovery in the second half of 2026, which will support market confidence.
The report maintains cloud computing and data centers as the top priority sub-sector, with the core logic being the high certainty of growth driven by the rapid expansion of AI Token demand; gaming and entertainment are ranked third, with the core logic being AI-driven user migration to leisure entertainment and healthy growth in advertising revenue.
<h2>Cloud Computing and Data Centers: Token Boom Drives Top Priority Status</h2>
Goldman Sachs maintains cloud computing and data center sub-sectors as the top priority allocation, with the core driver being the continuous explosive growth in AI Token demand and the resulting improvement in cloud service pricing power.
ByteDance recently announced that its daily average Token call volume has doubled again in the past three months to 100 billion (compared to 50 billion in December 2025), ranking among the top three globally. Token call volume on Alibaba's Baizhan MaaS platform has grown sixfold in the same period. Goldman Sachs expects Alibaba Cloud's revenue growth in the March 2026 quarter to accelerate further from 36% in the previous quarter to 40%. Alibaba management has also set a compound annual growth rate target of over 40% for external cloud and MaaS revenue for the next five years.
From a capital expenditure perspective, Goldman Sachs estimates that the capital expenditure of China's hyperscale cloud service providers in 2026 will account for about 58% of their operating cash flow, while the corresponding ratio for similar US companies averages 89%. Goldman Sachs estimates Alibaba's FY2027 capital expenditure to be approximately RMB 180 billion, a year-on-year increase of 34%; Tencent's capital expenditure in 2026 is expected to be around RMB 100 billion, a year-on-year increase of 25%. Goldman Sachs believes that the current operating cash flow plus net cash of China's hyperscale cloud service providers is sufficient to support continuous increases in capital expenditure to maintain competitiveness.
<h2>E-commerce and Travel: Valuation Lags Offer Upside Potential</h2>
Goldman Sachs significantly upgraded the e-commerce and travel sub-sectors from fourth to second place, with the core logic being significant valuation discounts coupled with marginal improvements in operating trends in the first quarter.
Regarding core target valuations, Pinduoduo's current expected P/E ratio for 2026 is about 9 times, and it held net cash of approximately $70 billion (including restricted cash) by the end of 2025; Full Truck Alliance also has a P/E ratio in the mid-single digits after excluding cash. Goldman Sachs believes that Pinduoduo's current market value barely values Temu, and with the acceleration of transaction service revenue growth in 2026 and Temu's GMV moving towards the $100 billion target (as estimated by Goldman Sachs), there is significant room for revaluation.
For Alibaba, management expects the year-on-year growth rate of customer management revenue (CMR) in the March quarter to accelerate to above the mid-single digits (only 1% in the previous quarter). Goldman Sachs estimates JD Retail's year-on-year revenue growth in Q1 2026 will improve from -2% in the previous quarter to flat, and expects it to gradually re-accelerate in the second half of 2026 after the base effect of trade-in subsidies is digested.
In terms of the competitive landscape for food delivery, Goldman Sachs believes that the State Administration for Market Regulation's recent focus on the &#34;anti-involution&#34; issue will promote more rational subsidies in the food delivery industry, helping to improve the competitive structure. The report suggests that with Alibaba setting a clear goal of achieving profitability in its instant retail business within three years and government regulatory intervention, the improvement path for Meituan's food delivery unit economics is relatively clear, although long-term profit levels have declined compared to the pre-competition era.
<h2>Gaming and Entertainment: AI Catalyzes Content Consumption Upgrades</h2>
Goldman Sachs slightly downgraded the gaming and entertainment sub-sectors from second to third place but maintained a positive overall view, with the logic being that AI continues to drive user time migration towards leisure entertainment and advertising revenue maintains healthy growth.
In the gaming sector, Apple recently announced a reduction in the standard commission rate for the China mainland App Store from 30% to 25%, and Google also announced a reduction in the standard in-app purchase commission for the Play Store from 30% to 20%. Goldman Sachs believes these changes will reduce channel costs for mobile game developers, expand profit margins, and help broaden the overall mini-game market (which still maintains an annual growth rate of over 20%). Tencent, as a key operator, will be the main beneficiary. Tencent's small universe AI assistant is expected to launch in the second half of 2026, and its Claw agent product is also progressing rapidly. Goldman Sachs believes these products will drive Tencent's transformation from a &#34;latecomer&#34; in foundation models to a beneficiary of AI agents.
In the entertainment content sector, thanks to high-quality long-form video content and AI-related vertical advertising placements by Bilibili, Goldman Sachs expects its advertising revenue growth in Q1 2026 to be around 26% year-on-year. Kuaishou's advertising business faces dual pressures from reduced overseas advertising and e-commerce-related tax policies. Goldman Sachs expects full-year advertising growth to slow to about 6% in 2026. Kling AI, an AI video generation tool, is seen by Goldman Sachs as a highlight for Kuaishou, with related revenue estimated at approximately $356 million in 2026.

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Goldman Sachs favors cloud computing and data centers, anticipating a surge in AI Token demand; it upgrades e-commerce and travel to second place, focusing on valuation repair and profit recovery for key stocks; gaming and entertainment rank third, benefiting from reduced channel fees and AI-driven content consumption upgrades. Goldman Sachs believes that the key to sector revaluation lies in the renewed value of AI infrastructure and shareholder returns

- Goldman Sachs maintains a differentiated strategy for the Chinese internet sector amid ongoing pressures, favoring cloud computing and data centers as top priorities.  
- The firm upgraded the e-commerce and travel sectors to second place, anticipating recovery in profits for companies like Alibaba and JD in the second half of 2026, backed by improved valuations.  
- In gaming and entertainment, while slightly downgraded to third, AI continues to enhance content consumption and advertising revenue, benefiting major players like Tencent amid favorable changes in app store commission rates.

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