China’s AI Stock Rally Still Has Plenty of Room to Grow, Goldman Sachs Says
China’s artificial intelligence-themed stock rally is continuing to gain momentum, and according to Goldman Sachs, there is still significant room for these valuations to rise. Contrary to fears that the surge resembles a speculative bubble, analysts believe the trend is rooted in real demand, practical developments, and measurable potential in corporate earnings. For investors seeking clarity on China’s place in the global AI race, the message from Goldman Sachs is clear. China’s AI cycle is not only sustainable but driven by a fundamentally different strategy compared with the United States.
Kinger Lau, the firm’s chief China equity strategist, explained that Chinese technology companies still trade at valuations that are notably lower than their American counterparts. This means the market has more space to grow as companies begin turning their AI technologies into profitable products and services. The earnings outlook, he says, remains encouraging as firms invest in areas where AI can be immediately commercialised.
China’s Focus on Applications Becomes a Strength
One of the distinctions highlighted by Lau is China’s emphasis on AI applications rather than purely on high-end computing power. In the United States, much of the investment boom has concentrated on processors, cloud infrastructure, and large-scale model training. These require immense financial commitments and often produce value over a longer horizon.
China’s strategy, on the other hand, channels more capital into real world usage scenarios. Companies are designing tools that improve customer service, workplace productivity, logistics efficiency, retail personalization and day to day digital experiences. For investors, this approach offers reassurance because it focuses on monetisable opportunities that can translate into shorter term revenue streams.
Lau noted that this application oriented direction is one of the reasons investors remain optimistic. They can more easily see how AI tools will be used, who will pay for them and how quickly they can be scaled. From enterprise solutions to consumer facing platforms, the pipeline for AI adoption in China is expanding across industries.
The Valuation Gap Creates Space for Upside
A major part of Goldman Sachs’ argument is the valuation gap between Chinese and American tech firms. While US-based AI giants have already soared to exceptionally high valuations, China’s application-driven companies remain priced at much lower levels relative to their earnings potential. This makes them attractive to investors who believe AI adoption in China will accelerate in the coming years.
Lau explained that Chinese tech firms, while ambitious, are still trading at multiples that reflect caution rather than exuberance. This means the sector can grow without triggering the typical warnings associated with overheated markets. The earnings trajectory, he believes, will be shaped by how well these firms convert demand for AI into practical tools used by businesses and consumers.
What Investors Are Watching
The central question for investors now is straightforward. How effectively can companies monetise AI demand? Lau said that this remains the most important factor in determining whether the current rally will continue. AI tools are being integrated into finance, transportation, marketing, manufacturing, and healthcare, creating a wide base of potential revenue.
Companies that demonstrate clear monetisation models, such as subscription based AI services, automation platforms or enterprise level software, may be among the biggest beneficiaries. Meanwhile, firms that struggle to move beyond research and development, or fail to connect AI tools to actual business needs, may find it difficult to keep up.
Investors are also watching regulatory developments. China has been actively shaping its AI governance framework, especially around safety rules, algorithm transparency and data usage. A balanced regulatory environment that encourages innovation while maintaining safeguards is seen as essential for long term growth.
A Different AI Ecosystem Than the US
Goldman Sachs’ assessment also highlights that China operates within a unique digital ecosystem. The country’s enormous consumer market, fast-paced digital adoption, and reliance on mobile-centred platforms create opportunities for AI integration that look different from those in Western markets. Super apps, e-commerce giants, logistics platforms, and payment systems already operate at scales that allow AI algorithms to be deployed quickly and efficiently.
This gives Chinese companies a competitive advantage in testing new AI tools in real time. Whether in personalized recommendations, automation, financial risk assessment or retail management, Chinese firms can gather data and refine their models at a speed that is difficult to replicate elsewhere.
Lau believes this environment will continue to fuel an application-driven rally supported by rising earnings and stronger business innovation. Investors, he says, are beginning to see that the AI wave in China is not merely tied to hype but rooted in measurable progress.
