China’s AI rally ignites as investors shrug off global disruption fears

Investing.com

Sun, February 22, 2026 at 2:08 PM GMT+9 2 min read

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Investing.com – While Wall Street is currently gripped by an “AI scare trade”, as investors dump software and wealth management stocks on fears of disruption, the Chinese market is moving in the opposite direction. Instead of fearing what AI might destroy, investors in mainland China and Hong Kong are aggressively chasing perceived winners.

This optimism is driven by AI’s potential to penetrate new markets and slash costs for end-users. It has created a stark divergence between the two largest economies. Local favorites like MiniMax Group Inc. (HK: 970) and Knowledge Atlas Technology JSC Ltd. (Zhipu) (HK: 725) have seen their valuations explode as a result.

In February alone, these stocks more than doubled. This was fueled by a rotation of capital away from traditional internet giants like Alibaba and Tencent and into “pure-play” AI names. Strategic insulation, thanks to regulatory barriers that limit foreign models like OpenAI, has given these domestic players a clear, uncontested run in the local market.

Domestic dominance and the performance “halo”

The euphoria in Chinese AI is being supported by a “halo effect” from massive global private funding rounds. With OpenAI reportedly eyeing a valuation exceeding $850 billion and Anthropic raising funds at a $380 billion clip, Chinese firms are undergoing a significant re-rating.

Analysts at Jefferies suggest there is still considerable upside to China AI valuations, especially as local labs hit new performance milestones. Zhipu’s latest model, GLM-5, recently topped the rankings for open-source models on Artificial Analysis. This marks the highest global ranking ever achieved by a Chinese AI lab.

This technical progress, combined with the extreme cost-competitiveness of models from firms like DeepSeek, is accelerating adoption across film, media, and enterprise sectors. It has even sparked secondary rallies in industries that stand to benefit from using these new tools.

Institutional backing and sustainability risks

Wall Street heavyweights are lending further credibility to the rally. Morgan Stanley, Jefferies, and UBS have all initiated coverage of MiniMax with “Buy” equivalent ratings. Morgan Stanley has issued particularly aggressive forecasts, projecting MiniMax’s revenue could hit $700 million by 2027.

This institutional backing has reinforced the narrative that China is still in the “penetration phase” of the AI cycle. In contrast, many believe the U.S. has moved into the “anxiety phase.”

However, seasoned market watchers warn that the current re-rating may be difficult to sustain if earnings growth fails to catch up with the hype. There is a growing concern that investors are ignoring the same disruption risks that are haunting U.S. markets. For now, however, the momentum remains firmly with the pure-play developers.

Story Continues  

_Reporting by Simon Mugo _

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