China’s Tech Boom Fuels Stock Rally Amid Economic Uncertainty
Almost a year after DeepSeek’s AI breakthrough sent shockwaves through global markets, China is stepping into 2026 with a new surge of technological innovations that are fueling a stock rally, despite the ongoing fragility of its economy. Thanks to fresh progress in sectors from commercial rockets to robotics and flying cars, Chinese tech shares have started the new year with impressive momentum. An onshore Nasdaq-like tech gauge has surged nearly 13 percent this month, while a measure of Hong Kong-listed Chinese tech firms has risen by almost 6 percent. Both have surpassed the performance of the Nasdaq 100. Enthusiasm for homegrown technologies has been the primary catalyst behind China’s equities bull run since April, despite the fact that the world’s second-largest economy continues to grapple with a housing slump and sluggish consumption. The momentum may gain further support in the coming months as DeepSeek rolls out a new AI model and China unveils a five-year economic blueprint prioritizing technological self-reliance. “The stock market is telling us that what China is doing in the technology sector is going to be very exciting going forward,” Mark Mobius told. “You must remember China’s goal now is to overtake the US in technology, in high-level chips, in all kinds of AI. So the money is going in that direction.” Since DeepSeek stunned global markets with its affordable and high-performing AI models on January 27 last year, other Chinese companies have hastened their initiatives to create their own versions. The adoption of generative AI has seen a significant increase among the nation’s leading Internet companies, including Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
In other contexts, Chinese robots have taken part in marathons, engaged in boxing matches, and showcased folk dance routines. In the realm of manufacturing, advanced equipment like flying taxis and precision machine tools are increasingly integrating large language models. The developments are transforming China’s image among investors from a low-cost manufacturing hub to a legitimate contender for US tech dominance, as global capital seeks the next growth engine. According to a report, the rally over the past year has increased the combined market value of 33 Chinese AI stocks they track by approximately $732 billion. Jefferies stated that it anticipates additional growth, noting that the market capitalization of China’s AI sector accounts for merely 6.5 percent of that of the United States. The enthusiasm is overflowing into the secondary market. A surge of recent listings from Chinese AI-related companies has resulted in remarkable gains, encouraging their counterparts to pursue opportunities in public markets. Included in the pipeline are Xpeng’s flying-car unit, rocket manufacturer LandSpace Technology, and BrainCo, which may emerge as a competitor to Neuralink Corp. “Looking ahead, we anticipate that the next major breakthrough in AI will occur at the application layer,” said Joanna Shen. “China, in particular, is well-positioned to lead this evolution, given its vast array of user cases across wearables, edge devices, and internet platforms.” The remarkable rally has indeed raised apprehensions regarding inflated valuations. Cambricon Technologies Corp., an AI chipmaker in competition with Nvidia Corp., is currently trading at approximately 120 times its forward earnings. A gauge monitoring Chinese robots is currently trading at over 40 times forward earnings, surpassing the Nasdaq 100’s 25 times.
Beijing’s recent move to tighten margin financing reflects the authorities’ increasing concern over speculative excess, particularly within certain areas of the technology sector. Nonetheless, certain investors maintain a positive outlook on the industry’s future, citing benefits like a low-cost base and robust support and planning from the state. “China’s low-cost model for AI may well pay off faster” than its US peers, Gavekal Research’s technology analyst Tilly Zhang wrote in a note dated Jan. 16. “The ‘DeepSeek moment’ encouraged China to focus on a strategy of cheap, good-enough models.” Anticipated within this quarter, the launch of DeepSeek’s R2 model could serve as the next catalyst.
The new model, expected to deliver exceptional performance at an ultra-low cost, “has the potential to disrupt the sector again, underscoring China’s position as the main rival to US AI supremacy,” noted in a recent report. Details of China’s new five-year plan, set to be released in March and emphasizing technological self-sufficiency, may provide stock bulls with another compelling reason to buy. “Chinese stocks may further outperform their US counterparts if earnings growth continues to accelerate, especially in sectors with advanced technologies and strong exports,” said Vivian Lin Thurston. “I expect to see attractive investment opportunities in these industries as we have seen in 2025, including internet, AI, semiconductor-related hardware tech, robotics, automation and biotech.”
