America is in the lead in the AI race, at least for now. But with Jensen Huang recently saying things like China is just “nanoseconds” behind, I do think investors looking for growth in the AI trade might wish to expand their horizons beyond the U.S. Undoubtedly, Jensen Huang’s recent comments may be concerning, but the reality of the matter is that nobody knows who will win the “AI race,” and how many times the lead could change hands. Either way, it’s clear that China’s regulatory environment and lower energy costs are a major plus for the Chinese AI innovators, as I noted in a previous piece.
In this piece, we’ll look at three Chinese internet stocks worth owning as the AI race gets close, perhaps too close to call, as China looks to make even larger strides in AI and agents. Though they may be trailing their American counterparts in AI, I do find that their valuations are compelling, especially when you consider the potential for the world’s number-two AI superpower to catch up and even pull ahead.
Although I don’t think China will ultimately win the AI race, I believe it’s essential to remain diversified across names in the AI waters, as the competition could become increasingly unpredictable heading into the new year.
Alibaba
Alibaba (NASDAQ:BABA) is the Chinese internet giant whose shares are becoming a must-own for those seeking AI innovation at a discount. Of course, there are geopolitical risks of investing in Chinese internet stocks. That said, there’s also a hefty risk of paying too high a price for the relatively pricey American innovators.
Whether the geopolitical risks are larger than the valuation risks remains a big topic for debate. Either way, I do think that with the rise in AI bubble fears, cheap AI innovators, even those overseas, might be worth stashing in your portfolio for a lower degree of correlation to the S&P 500 and the rest of your portfolio, provided you’re heavily exposed to the Magnificent Seven as many investors likely are.
With a 0.32 beta and a fairly modest 19.3 times trailing price-to-earnings (P/E) multiple, Alibaba might be that AI stock to complement the highly correlated Magnificent Seven. As one of the most dominant Chinese firms in the AI cloud and a powerful Qwen AI model that’s advancing quite rapidly, the Chinese internet juggernaut really does seem to be Magnificent Seven-like in a lot of ways. As the firm looks to get into the smart AI glasses market, Alibaba is starting to look like many Mag Seven players all in one.
As the Chinese giant invests heavily in AI while backing various Chinese AI startups and expanding into new frontiers, it’s hard to bet against the big Alibaba comeback. Sure, shares have nearly doubled on a year-to-date basis, but shares are far from expensive, especially relative to American rivals. If China is to catch up in the AI race, my guess is Alibaba will play a big part in that. As such, the name remains a must-watch for those seeking AI growth at a reasonable price.
Baidu
Baidu (NASDAQ:BIDU) is another fast-rising AI star, with shares up over 53% year to date on the back of AI advancements and the rollout of its autonomous robotaxi. Like Alibaba, I’m sure you’ll see a lot of the Mag Seven within Baidu, and it’s not just robotaxis or its Ernie AI model, which is also moving at a fast pace as the company triples down on reasoning. With the firm unveiling a profound technology named Nova, which is basically an AI-powered digital human meant for livestreaming, things could have the potential to get really interesting.
With less in the way of regulatory hurdles, I suspect Baidu’s robotaxi rollout could be far more rapid than that of its American counterparts. Add more cutting-edge technologies introduced across new platforms, like Nova, and I think names like Baidu become less of a nice-to-have and more of a must-watch, and perhaps even a must-own for those who want to make a broader bet on AI.
At 11.6 times trailing P/E, Baidu stock screams deep value, especially as the firm pulls the curtain on some of the more experimental AI innovations out there while continuing to advance its AI cloud momentum.
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