Alibaba’s tumbling shares have dampened China’s AI hopes

Alibaba Group Holding Ltd. shares tumbled on Friday, suffering their biggest one-day fall in more than a month, after the e-commerce giant’s latest results let down investors who had ranked the company among the prime winners of China’s AI race.

JD.com Inc. and Tencent Holdings Ltd. also posted their fastest revenue gains since the pandemic highs, yet both stocks are still heading for weekly losses as the broader technology rally stalls.

The first rush of excitement over China’s AI progress is now cooling off. “This earnings season was a reminder that market expectations had perhaps run ahead of on-the-ground realities — both in terms of China’s consumption recovery and the pace of AI monetization,” said Charu Chanana, chief investment strategist at Saxo Markets.

“China Big Tech is still navigating a transition phase, and the path to re-rating needs more than just efficiency gains. It needs a durable growth narrative,” Charu added.

China’s tech sector faces slow domestic spending and fragile demand

Until this week, analysts had lifted profit forecasts for the Hang Seng Tech Index by more than 30 percent over the past year. Technology companies were viewed as shielded from tariff pain because they depend mainly on domestic customers; mainland sales make up about 90 percent of Tencent’s income. Even so, the broader drag from the trade dispute has clouded the outlook for domestic consumption.

Demand inside China remains fragile, and the industry faces new internal battles. JD.com has declared war on Meituan and Alibaba in the crowded food-delivery sector, while JD and Alibaba are investing funds into one-hour delivery of everything from skin cream to smartphones. “The on-the-ground reality in China is different — things are improving, but it is a very slow consumption recovery,” said Sat Duhra, a portfolio manager at Janus Henderson Investors.

Alibaba has outperformed other tech giants this year, thanks to hopes it can lead the race to commercialize DeepSeek’s AI. However, even firm believers accept that turning DeepSeek’s AI into profits will take time. On recent calls, analysts pressed Alibaba, Tencent, and JD for specifics on how AI will deliver profits. Executives spoke of lifting advertising, design, and shopping experiences, yet they were cautious about giving comments on actual near-term revenue.

Tencent pushed back against fears that Chinese firms may soon run out of Nvidia’s chips, which are seen as essential for modern AI development. Nonetheless, big questions persist about Washington’s efforts to slow China’s AI rise by limiting shipments of high-end chips. The uncertainty clouds spending plans across the industry.

Some investors preach patience while China’s tech giants integrate DeepSeek into their products. For now, Beijing has thrown its weight behind efforts to rival OpenAI and Google, arguing that years of quiet investments are slowly starting to pay off.

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