A blistering rally in Chinese mainland technology shares accelerated on Wednesday as renewed bets on artificial intelligence sent a key gauge to the highest in nearly four years.
The Hang Seng Tech Index, which tracks the largest tech firms listed in the Hong Kong Special Administrative Region, rose 4.2 percent to close at its highest level since November 2021.
Search engine operator Baidu Inc led gains with a 16 percent jump but multiple tech giants came along for the ride: Shares of Alibaba Group Holding Ltd, Semiconductor Manufacturing International Corp, and JD.com Inc all surged.
The index is now set for its seventh consecutive week of gains, helped hopes that tech companies’ big bets on AI will pay off. The gauge has jumped 42 percent this year, trouncing a benchmark of regional peers.
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“China tech leaders are visibly re-accelerating AI spend and product rollouts — models, robotaxis, in-house chips — while also proving they can monetize AI faster than many expected,” said Charu Chanana, chief investment strategist at Saxo Markets. “With valuations lagging the US, investors are starting to pay attention again.”
The Hang Seng Tech Index trades at around 21 times forward earnings, below its five-year average of 23.3 times earnings and Nasdaq 100 Index’s ratio of 27 times, according to Bloomberg-compiled data.
Brokers are quickly lifting price targets. Goldman Sachs Group Inc has raised its target for Alibaba’s shares, citing a better outlook for its cloud business. Arete Research Services LLP lifted its rating on Baidu’s American depositary receipts to buy from sell on the growth potential for its in-house chip business. Shares of battery maker Contemporary Amperex Technology Co have soared this week after JPMorgan Chase & Co upgraded its rating on the company.
Still, while US tech stocks have hit record highs, the Hang Seng Tech Index will require a rally of around 70 percent before reaching the peak set in February 2021.
Big Spending
The mainland’s biggest tech companies are in the middle of a spending spree on AI, as they race against one another and against US firms to conquer a market widely expected to revolutionize how people live and work.
Total capital expenditure from major mainland internet firms such as Alibaba, Tencent Holdings Ltd, Baidu and JD.com is set to hit $32 billion in 2025, more than doubling from $13 billion in 2023, according to a Bloomberg Intelligence report.
That has helped create a funding spree in equity and bond markets. Alibaba raised $3.2 billion from a blockbuster convertible bond offering last week, while Tencent turned to the dim sum bond market for 9 billion yuan ($1.27 billion) on Tuesday, its first bond sale in four years.
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The latest news fueling optimism was a state television report Tuesday night that China Unicom’s Sanjiangyuan data center has signed contracts to deploy AI chips from local firms including Alibaba’s chip unit T-Head.
Separately, mainland foundry SMIC’s shares jumped over 7 percent following a report that it is running trials on the mainland’s first domestically produced advanced chipmaking equipment.
Investors are now looking ahead to a conference held by Alibaba Cloud later this month, where the company could offer fresh signs of how far it is progressing with AI development.
