China Earnings to Test Rotation From AI to Internet Stocks

Tencent Holdings Ltd. and JD.com Inc. report earnings this week, testing whether China's rotation from AI infrastructure stocks into internet platforms can continue. JD.com is expected to post an 18% year-on-year rise in non-GAAP net profit to 8.7 billion yuan ($1.29 billion) for the second quarter, while Semiconductor Manufacturing International Corp.'s outlook may signal chip demand. Analysts say profitability for internet firms is improving, but SMIC may struggle to meet its guided margins of 20% to 22%.

Bloomberg -- A rotation into China's biggest tech firms from AI infrastructure stocks will be tested this week as earnings are due. Most Read from Bloomberg - China Unleashes $28 Trillion Capital Markets to Challenge US in AI https://www.bloomberg.com/news/features/2026-08-09/china-bets-on-ai-stocks-as-it-races-against-us-for-chip-tech-dominance?utm campaign=bn&utm medium=distro&utm source=yahooUS - Apple's Glass-Centric 20th-Anniversary iPhone Remains on Track for 2027 https://www.bloomberg.com/news/articles/2026-08-11/apple-s-glass-centric-20th-anniversary-iphone-remains-on-track-for-2027?utm campaign=bn&utm medium=distro&utm source=yahooUS Results from Tencent Holdings Ltd. and JD.com Inc., due Wednesday and Thursday respectively, will offer an early look at whether stronger core businesses can cushion the impact of rising AI spending, while Semiconductor Manufacturing International Corp.'s outlook may provide clues on chip demand. The reports may signal if market leadership stays with internet platforms or swing back to chipmakers. A broader shift into internet and consumer stocks has gathered pace since late June as the artificial intelligence rally cooled, reversing some of the market's first-half trends. JD.com and Alibaba Group Holding Ltd. have been the top performers on the benchmark Hang Seng Index since the start of July after lagging in the first six months, while SMIC has moved in the opposite direction. "It's quite possible it will continue," Leonid Mironov, portfolio manager at Gavekal Capital Ltd., said of the rotation. "Alibaba and Tencent offer a very different positioning in the AI space than SMIC and other semiconductor names. Investors need to make up their mind which one is preferable." Analysts say profitability outlooks for internet companies are improving. JD.com is likely to report an 18% year-on-year increase in non-GAAP net profit for the second quarter to 8.7 billion yuan $1.29 billion , supported by a meaningful narrowing of its food delivery loss with a more rational competitive backdrop, according to HSBC Holdings Plc. Peer Meituan may also report results that are slightly ahead of forecasts as losses narrow faster than expected amid easing subsidy intensity, Citigroup Inc. analysts wrote in a note. On the other hand, SMIC may face hurdles in meeting its guided margins of 20% to 22%, according to Bloomberg Intelligence, though sales for the second quarter is expected to grow 14% to 16% from the prior three months. Investors will be keeping an eye on third-quarter guidance for signs that margin gains and recent price increases are sustainable. Not all internet companies are likely to benefit equally. "We expect dispersion among China internet names, because the market will reward companies that can convert investment into earnings and defend margins, rather than simply announce a larger capex budget," said Song Zhe, senior investment specialist at BNP Paribas Asset Management.