🔍 The focus this week: Chinese tech earnings

China’s beaten-down tech stocks have been enjoying a rare moment in the sun lately. Alibaba and Baidu, in particular, have been basking in it, ever since DeepSeek’s cheap and powerful AI revived sentiment about the country’s high-tech giants. It’s a distinct change in weather: after years of regulatory crackdowns, sluggish consumer demand, and global skepticism, tech stocks in Hong Kong are now leading a broader Chinese market recovery.

But earnings season is where the hype meets reality. Alibaba and Baidu will report their latest results this week, offering crucial insights into cloud business growth, the money-making prospects of their AI work, and the overall strength of China’s digital economy. And there’s a big question to be answered here. See, investors have been piling into Chinese tech stocks in hopes that AI might unlock new revenue streams, but they still don’t know whether these companies can turn the tech advances into sustained profit growth.

Alibaba has seen a more than 40% surge from its January low, with investors betting that its AI investments will pay off. But its cloud business growth has lagged well below that of US peers like Amazon and Microsoft. Similarly, Baidu’s recent decision to offer its AI chatbot for free has raised concerns about the intense pricing competition in China’s AI space. If either company disappoints – whether in revenue growth, AI monetization, or cloud expansion – their stocks could slide sharply as investors reassess.

On the flip side, a strong earnings report could push Chinese tech stocks even higher. Investors have already been warming up to China again, with hedge funds increasing their exposure to the market. If Alibaba and Baidu can prove that AI-driven (or DeepSeek opportunity) growth is real, their stocks could extend gains and help narrow the valuation gap between Chinese and US tech giants.

This week, investors will be watching not just the numbers, but also the narrative. AI has sparked new hope for China’s tech giants – whether that translates into lasting returns is a test that begins now.

📅 On the calendar

• Monday: US markets closed.
• Tuesday: Japan balance of trade (January). Earnings: Baidu, Occidental Petroleum, Medtronic.
• Wednesday: Federal Reserve minutes, US housing starts (January). Earnings: Etsy.
• Thursday: Japan inflation (January), euro area consumer confidence (January). Earnings: Alibaba, Walmart, Block, Booking Holdings, Rivian.
• Friday: US existing home sales (January), global service sector and manufacturing activity (January). Earnings: Berkshire Hathaway.

👀 What you might’ve missed last week

US

• Consumer prices surged in January, marking the biggest increase since August 2023.
• A 25% tariff was imposed on all steel and aluminum imports, raising concerns about trade tensions and inflation.

Asia

• Chinese tech stocks soared, pushing the Hang Seng Tech Index to a three-year high.

Europe

• France announced a major investment in AI projects, aiming to establish itself as a hub for innovation and development.

✍️ What does all this mean?

Last week was a wake-up call for investors. US inflation came in hotter than expected – with consumers having to shell out more for essentials like food, housing, and energy. That news dashed hopes for a pair of Federal Reserve (Fed) interest rate cuts this year: by the end of the week, traders were pricing in just one trim. After all, with the US job market still flexing a lot of muscle, there’s little reason for the central bank to hurry its key interest rate lower. The problem is, that means borrowing costs could stay higher for longer, making life harder for consumers and businesses alike.

Not helping matters any: all this talk about tariffs. The White House has been targeting the country’s biggest trading partners – Canada, Mexico, and China – with steep new tariffs. And its latest salvo would slap a 25% levy on worldwide steel and aluminum imports, impacting key industries from construction to auto manufacturing. Economies all around the world are warning of retaliatory measures, which could further disrupt global trade. If these taxes and counter-taxes continue to escalate, US inflation could rise even further, complicating the Fed’s decision-making and weighing on corporate profit margins.

Despite those economic worries, investors have still been chasing growth – especially in AI. US tech stocks may have stumbled after Chinese startup DeepSeek’s ground-shaking debut, but China’s own tech sector has been booming. The Hang Seng Tech Index surged last week as investors flocked to AI-related plays, betting that China’s advancements in AI could challenge US dominance.

Meanwhile, France has been making its own AI push, announcing a €109 billion ($113 billion) investment to position itself as a major hub for the technology. With backing from giants like Amazon and Brookfield, France is looking to narrow the AI infrastructure gap with the US and China.

Stay classy ✌️

Your Finimize Analyst team