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(Bloomberg) -- China’s long-moribund tech sector started 2025 with a bang.
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DeepSeek came out of nowhere to challenge US supremacy in AI. Xi Jinping publicly celebrated the nation’s most prominent entrepreneurs from Jack Ma to Liang Wenfeng. Shares in China’s biggest tech firms staged their headiest rally since 2020.
As the year’s first quarterly earnings season got underway this week, investors got a wake-up call.
Alibaba Group Holding Ltd. shares plunged their most in more than a month Friday after disappointing investors who anointed the e-commerce leader one of the frontrunners in the DeepSeek-inspired AI boom. JD.com Inc. and Tencent Holdings Ltd. posted their fastest revenue growth since Covid-era heights — but that followed years of sub-par growth as they struggled with a Chinese downturn and a debilitating government crackdown. Both are on track for share losses since their reports.
To be fair, Beijing’s stimulus measures and a plethora of government spending incentives are propping up consumption — Alibaba’s giant e-commerce operation outperformed in the March quarter, in one clear example.
But with Meituan and PDD Holdings Inc. yet to report, the initial numbers suggest that investors might’ve gotten ahead of themselves. Chinese consumers and corporations are still holding back, wary of the turbulence brewing abroad as Donald Trump wages his trade war. At home, Alibaba, JD and Meituan — eager to rekindle growth — are sacrificing margins to expand into everything from faster delivery to food.
All that is raising alarm bells for investors as the initial excitement over China’s AI advances fades.
“This earnings season was a reminder that market expectations had perhaps run ahead of on-the-ground realities — both in terms of China’s consumption recovery and the pace of AI monetization,” said Charu Chanana, chief investment strategist at Saxo Markets.
“China Big Tech is still navigating a transition phase, and the path to re-rating needs more than just efficiency gains. It needs a durable growth narrative,” she said.
Before this week, analysts’ earnings estimates for the Hang Seng Tech Index — which includes all the big names — had risen more than 30% in the past year, outpacing the broader market.
China’s tech sector has been seen as largely resistant to the impact of tariffs given its focus on local consumer spending. Mainland China accounts for 90% of Tencent’s revenue, for example. At the same time, the trade war’s broader macro impact has clouded the outlook for consumption.