Goldman Sachs believes that 2026 will be a strategic turning point for China's internet giants – companies will increase their AI investments targeting consumers, compete around the 'AI super entrance,' and focus more on defending their core leading positions.
According to Storm Chaser Trading Desk, Ronald Keung’s analyst team at Goldman Sachs noted in their latest research report that this year will be a 'dual-mainline year' for China's internet giants, marked by increased AI investment and defense of core market positions. ByteDance's breakthroughs in AI, e-commerce, and local services are forcing giants like Alibaba and Tencent to initiate comprehensive strategic pivots. On one hand, they are ramping up AI To-C investments and capital expenditures, while on the other, they are fully committed to defending their core market positions. The logic of 'profit growth + new globalization narrative + shareholder returns' will replace the generalized growth rationale, becoming the industry's core profitability mainline in 2026.
Among the giants,$PDD Holdings (PDD.US)$PDD Holdings has become Goldman Sachs' core recommended target for 2026. Its 10x 2026E P/E ratio is significantly lower than the industry median of 18x, combined with Temu's profitability inflection point, AI application potential, and a solid 'cost-performance' user mindset in the domestic下沉market, indicating significant room for valuation re-rating. Meanwhile,$Alibaba (BABA.US)$(full-stack AI layout) and$TENCENT (00700.HK)$(core beneficiary of AI applications) remain the core targets for long-term (1-3 years) allocation.
Industry Turning Point: ByteDance Forces Strategic Pivot Among Industry Giants
The 2026 industry turning point is essentially a chain reaction triggered by ByteDance's 'comprehensive breakthrough.' As the profit leader among China’s internet companies, with an estimated $50 billion in profits for 2025 (far exceeding Tencent's $36 billion and Alibaba's $15 billion), ByteDance's multi-faceted breakthroughs have rewritten the rules of industry competition.
In the AI sector, ByteDance's DouBao app, with over 100 million daily active users (DAU), has become the top consumer-grade AI application in China, consuming 50 trillion tokens daily, ranking third globally. Its upcoming collaboration during the 2026 CCTV Spring Festival Gala is expected to further expand its user base. At the AI model level, the releases of Doubao-Seed-1.8 and Seedance1.5Pro, a video generation model, highlight its technological leadership in multimodal domains. In e-commerce, Douyin E-commerce’s GMV grew by over 30% year-over-year, securing a top-three position in the industry, with projections to surpass PDD Holdings by 2026. In local services, ByteDance's store-visiting business continues to capture market share, with GTV reaching 800 billion yuan, directly challenging Meituan’s leading position.
Facing ByteDance's offensive,$Alibaba (BABA.US)$、$TENCENT (00700.HK)$strategic pivots by giants such as Alibaba, Meituan, and Tencent are inevitable: First, increase AI investment—by 2026, the combined AI capex of ByteDance, Alibaba, and Tencent will exceed USD 60 billion (approximately RMB 410 billion), focusing on To-C AI super entry points and full-stack technology. Second, defend core territories—Alibaba will fully consolidate its position as the top e-commerce GMV leader, Meituan will strengthen its local service advantages, and Tencent will accelerate the implementation of AI agent functionalities within WeChat, even planning to use QQ as a testing ground for exploring social AI applications. Third, optimize competitive dynamics—the 'internally competitive' landscape in sectors like food delivery will gradually rationalize, with significant improvements in unit economics.
Core Trends: Six Major AI Themes Reshaping the Industry Ecosystem
Under strategic pivots, AI has become the core engine driving industry restructuring. Goldman Sachs identified six critical AI themes for China’s internet industry in 2026, spanning technological breakthroughs, application implementations, and globalization across the entire value chain, each reshaping the industry ecosystem.
Advertising and marketing transformation: Advertising budgets concentrate on ROI-driven advertising.$TENCENT (00700.HK)$Products such as AIM+ and$Alibaba (BABA.US)$Full-Stack Push are accelerating penetration. AEO (Answer Engine Optimization) and GEO (Generation Engine Optimization) have become new hotspots, with advertisers shifting from single SEO strategies to a combination of 'SEO+GEO+AEO' to ensure content visibility in AI scenarios.
Escalation in model competition: The AI model race focuses on long-context, multimodal, 3D world models/physical AI, and low-cost architectures. ByteDance and Alibaba lead in the multimodal domain, with Alibaba's AutoNavi Maps world model and PixVerseR1 real-time world model driving applications in physical AI and robotics.
To-C AI entry points explode: 2026 becomes the 'inaugural year' for consumer-grade AI super-entry points. Intense competition emerges among ByteDance’s DouBao + mobile assistant, Alibaba’s Qwen (integrated with lifestyle services and shopping), and WeChat AI Assistant (leveraging mini-program ecosystems). While short-term inference costs rise, long-term monetization will occur through advertising and commissions, potentially altering users’ multi-app usage habits.
China's AI rivalry: Access to next-generation chips becomes pivotal in the US-China AI model competition. NVIDIA's Rubin chip delivers five times the inference performance of Blackwell, while domestic enterprises hold significant advantages in power supply and infrastructure.
Dual-track globalization monetization: Chinese AI models transition from purely open-source to a hybrid “open-source + closed-source” model. Top-tier models like Alibaba’s Qwen3-Max adopt closed-source approaches for subscription and API monetization. Coding and multimodal models leverage cost and speed advantages to accelerate global penetration, covering over 200 countries.
Surging infrastructure demand: AI needs from both To-C and To-B sectors drive rapid growth in inference demands and token volumes. BAT's AI-related capex exceeds $600 billion by 2026, boosting cloud service revenue and data center demand. Alibaba Cloud is expected to maintain over 30% growth, benefiting GDS and 21Vianet (VNET) through increased orders.
Investment Framework: Three Themes to Unlock Alpha Opportunities
Goldman Sachs emphasizes that China's internet investment in 2026 will shift from a 'broad-based rally logic' to an 'alpha era' focused on stock-picking. Investment themes will revolve around EPS delivery/growth, AI and globalization narratives, and shareholder returns. Cloud and data centers, gaming and entertainment, and AI models are identified as the top three preferred sub-sectors.
1. EPS Delivery/Growth: Anchoring on Profitability Improvement Certainty
Focus on companies with improving order flows, rationalized competitive landscapes, and margin expansion. Key areas include data centers (benefiting from AI infrastructure demand), e-commerce and local services (narrowing losses), and tactical plays (new business-driven performance). Goldman Sachs notes that Alibaba benefits from easing food delivery competition, with narrowing losses making it one of the fastest-growing profit giants. JD.com’s instant retail business losses will begin narrowing in the second half of 2026, marking a clear profitability inflection point.
Goldman Sachs pointed out that$Alibaba (BABA.US)$Benefiting from the easing of competition in food delivery, losses have continued to narrow, making it one of the fastest-growing giants in terms of profitability.$JD.com (JD.US)$The losses from its instant retail business will begin to narrow from the second half of 2026, indicating a clear turning point for profitability.
2. Narrative Shift: Exploring AI and Globalization Revaluation Potential
Focus on targets benefiting from AI technology breakthroughs and overseas business growth, with emphasis on AI models (technical superiority + user expansion), globalization strategies (profit inflection points in cross-border e-commerce / overseas gaming), undervalued overseas operations, and cloud service enterprises.
Goldman Sachs believes that$KUAISHOU-W (01024.HK)$Its video generation model, Kelin, is technologically advanced and experiencing rapid growth in global users, positioning it as a key beneficiary of AI models.$Baidu (BIDU.US)$It is expected to unlock value through the spin-off and public listing of Kunlun Core.
3. Shareholder Returns: Prioritizing Cash Flow and Return Capacity
Select targets with stable cash flow and strong shareholder return intentions, focusing on companies with ample net cash, room for dividend increases, or consistent dividend policies.
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Editor/Melody