A leading emerging markets value fund is making a notable shift, buying into Chinese AI giants like Tencent and Alibaba.
The core of this strategy is a simple valuation argument: you're paying less for more potential in China. For example, Alibaba's price-to-earnings (P/E) ratio, a common measure of how expensive a stock is, hovers around 18x. This is a significant discount compared to Nvidia at 37x, Microsoft at 26x, or Amazon at 29x. The fund manager believes this lower price means investors are not overpaying for the future productivity gains AI is expected to bring.
Meanwhile, U.S. tech giants are in the middle of a historic spending spree, often called a 'capex super-cycle'. Companies like Amazon, Meta, and Microsoft are planning to spend a combined $610 billion in 2026 alone on data centers and AI chips. While this guarantees immense computing capacity, it also raises serious questions about short-term profitability. It's a story of 'certainty of spending' but not necessarily 'certainty of returns', which makes value-focused investors nervous.
This contrasts sharply with the situation in China. Beijing has officially designated AI as a key driver of the economy, calling it a 'new quality productive force'. First, the government is actively supporting the buildout of massive computing infrastructure and encouraging thousands of firms to develop AI applications. Second, policies like 'computing power vouchers' are being rolled out to help smaller businesses afford AI services, directly expanding the customer base for companies like Alibaba and Tencent. The focus is less on just building capacity and more on immediate, widespread application and monetization.
The final piece of the puzzle fell into place in early 2026 when the U.S. government conditionally approved the sale of Nvidia's powerful H200 AI chips to China. This decision is crucial because it helps alleviate a major bottleneck—the lack of high-end computing power—that was holding back Chinese AI development. With better access to these chips, Chinese platforms have a much clearer path to deploying and profiting from their AI models at a large scale. This combination of low valuation, supportive policy, and easing supply constraints creates a compelling case for a value-driven rotation into Chinese AI.
- Glossary
- Hyperscaler: A massive cloud services provider that can offer computing and storage services at an enormous scale, like Amazon Web Services (AWS), Microsoft Azure, and Alibaba Cloud.
- Capex (Capital Expenditure): Money a company spends to buy, maintain, or upgrade physical assets like buildings, data centers, and equipment.
- P/E Ratio (Price-to-Earnings Ratio): A valuation metric calculated by dividing a company's stock price by its earnings per share. A lower P/E can suggest a stock is relatively cheaper.