China Internet Sector: Presentation - China AI and online verticals update

UBS's China Internet research team updates its views on China AI and online verticals in this presentation. Sector performance has been soft and has lagged the market YTD, with investor concerns centred on soft macro conditions (notably consumption), intensifying competition, greater AI investment and varied AI impact across verticals, which have driven EPS downgrades. The team nonetheless sees signs of stabilisation, arguing that valuations already price in many near-term concerns, that earnings momentum should turn positive over the next few quarters, and that the evolving AI narrative around competition, investment and monetisation will be the key share-price driver. The report highlights five structural changes: heavier asset investment by leading platforms to build moats (1P merchandise, instant-retail and distribution infrastructure, AI vertical integration); AI competition expanding from models to applications and ecosystems;