UBS is optimistic about Chinese tech stocks, believing that investment opportunities are emerging after recent pullbacks.

Investing.com - UBS analysts say that after recent sector pullbacks, they are increasing their allocation to Chinese tech stocks. Strong earnings, attractive valuations, and advances in artificial intelligence are expected to deliver returns by 2026.

The broker states that the Chinese tech sector will benefit from increased capital expenditure and enhanced AI capabilities by 2026.

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UBS says that Chinese tech giants currently invest only a small fraction of their capital expenditure compared to U.S. peers, and expects large local companies to announce expanded spending plans in the upcoming earnings season.

“Although U.S. investors have recently become more negative about accelerating capital expenditure, we believe China remains in a cycle where investors reward companies committed to growth in capital spending,” said UBS analysts.

The Chinese tech sector—especially stocks listed in Hong Kong—has fallen about 20% from October highs amid concerns over excessive U.S. AI spending. Recently, the sector has also faced increased pressure from fears that AI will disrupt traditional software, particularly after startups like Anthropic released a series of new AI tools.

Conversely, a group of smaller Chinese AI startups—such as Zhipu, MiniMax, and Deepseek—have released a series of cutting-edge AI models in recent months, fueling optimism about the country’s long-term AI prospects.

“We expect more active AI development in China by 2026—including more powerful foundational models and innovative applications,” said UBS analysts.

UBS increased its weight in Tencent Holdings by 3 percentage points in its portfolio, and added 1 percentage point each to Bilibili, KanZhun, Meituan, NetEase, and TAL Education. It reduced its holdings in Vipshop by 3 percentage points, cut New Oriental by 2 percentage points, and slightly reduced positions in Alibaba, Kuaishou Technology, and Xiaomi.

UBS also took a more positive stance on the Chinese gaming sector, believing market fears of AI disruption are overblown. The sector’s stocks faced pressure early in 2026 after Google launched Project Genie, a world model for building interactive virtual worlds, raising concerns that lower entry barriers would intensify competition.

The bank countered this view, stating that strong user understanding, operational capabilities, and intellectual property reserves remain key advantages that small developers cannot easily replicate. It noted that top gaming companies could benefit from AI trends rather than be harmed by them.

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