Transformational Innovation Opportunities (TRIO)

10 August 2026, 00:00 UTC Chief Investment Office GWM Investment Research

Intelligence weekly #123: Previewing Alibaba and Tencent and why we think it’s time to revisit China internet Transformational Innovation Opportunities (TRIO): Artificial Intelligence Authors: Arafat Alafate, CIO Equity Strategist, UBS AG Hong Kong Branch; Delwin Kurnia Limas, CFA, CIO Equity Strategist, UBS AG Singapore Branch; Kevin Dennean, CFA, CIO Equity Strategist, US Technology & Telecom, UBS Financial Services Inc. (UBS FS); Achille Monnet, CIO Equity Analyst, UBS Switzerland AG; Allen Pu, CFA, CIO Equity Strategist, UBS AG Hong Kong Branch; Nikolaos Fostieris, Global Equity Strategist, UBS Switzerland AG; Xueqiong Huang, Equity Strategist, UBS AG Singapore Branch

• Our view: We believe the risk-reward profile of China internet stocks has improved meaningfully. Three developments are driving our more constructive view: 1) competitive intensity is easing; 2) AI monetization and execution are becoming more credible; 3) capital flows are becoming more supportive.

• Alibaba earnings preview: Easing food-delivery competition, accelerating cloud growth and continued Qwen upgrades support further upside, with upcoming results and the September Apsara Cloud conference as catalysts. We expect strong MaaS-led cloud growth, margin expansion, and narrower quick-commerce losses in CY2Q26. Source: Shutterstock • Tencent earnings preview: Tencent’s rapid AI progress, strong ecosystem and resilient cash-generative core businesses support upside in the longer term. However, higher AI investment may create near-term EPS downgrade risk. We expect 2H26 catalysts from Hunyuan, WorkBuddy and the Weixin agent.

We believe several of the headwinds that weighed on In our view, the sector is entering a period in Chinese internet stocks over the past year are beginning which competition is moderating, AI-related concerns to ease. Valuations had become deeply depressed by late are becoming more manageable, and capital flows are June: Tencent was trading at valuation levels last seen at the becoming more supportive. We therefore believe it is time end of 2022, Meituan had fallen back to levels last seen to revisit China internet stocks. eight years ago, and Alibaba had retraced to around its post- DeepSeek levels. Despite the bearish sentiment, we added Chinese hyperscalers into our AI portfolio for the first time since last October (Link).

Sentiment subsequently improved as several positive catalysts emerged in quick succession. Tencent’s Hunyuan 3 model showed meaningful progress, Alibaba Cloud growth accelerated, and losses in the food-delivery business began to narrow.

This report has been prepared by UBS AG Hong Kong Branch, UBS AG Singapore Branch, UBS Financial Services Inc. (UBS FS), UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

Transformational Innovation Opportunities (TRIO): Artificial Intelligence

AI selection list E-commerce competition is also becoming more rational Competition in e-commerce has likewise begun to moderate. Industry growth continues to slow, while weak consumption makes aggressive expansion less economically attractive. In this environment, there is less incentive for platforms to pursue growth at any cost.

The most important development, in our view, is that ByteDance appears to be reallocating resources towards AI. This should reduce the pressure on other internet platforms, particularly those listed in Hong Kong. Note: Weights shown above are the portfolio weights based on the AI Equity preference list published as on 04 August 2026. ByteDance is shifting resources towards AI *Potential trading restrictions. This is a copy of the Equity Preference List For years, ByteDance pursued a highly aggressive strategy (EPL) "AI." As selections may change, we recommend visiting the UBS WM CIO portal (which also lists the analysts responsible for the selections and across advertising, e-commerce and local services. As a the thematic benchmark), or contacting your client advisor for the latest result, its e-commerce business reached third place in update of this EPL. the industry by GMV, putting pressure on…