Key Takeaways:
- Daiwa rates Tencent, NetEase, Baidu, Bilibili and Alibaba all Buy
- Tencent gets HKD700 target, implying 54.5% upside from current levels
- AI revenue conversion across cloud, advertising and apps drives the thesis
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Daiwa names Tencent, NetEase top picks as AI monetization gains visibility
Daiwa ranked Tencent and NetEase as its top Chinese internet picks after 1Q26 results showed tangible AI revenue conversion across cloud computing, advertising and AI-native applications.
"All China internet stocks under our coverage have announced their 1Q26 results, and the data confirms AI monetization is accelerating," Daiwa said in a report published Monday.
The broker assigned Buy ratings to all five names in its preference ranking: Tencent (00700.HK), NetEase (09999.HK), Baidu (09888.HK), Bilibili (09626.HK) and Alibaba (09988.HK). Price targets imply substantial upside — Tencent at HKD700 offers 54.5% potential gains, Alibaba at USD200 implies 58.8%, and Bilibili at USD30 suggests 66.6% upside. NetEase carries a USD165 target (34.4% upside) and Baidu USD175 (29.8%).
The report shifts the focus from model capability to usage-based monetization, with token consumption, ad conversion rates and enterprise workflow execution becoming the key metrics. Daiwa expects 2H26 milestones including Tencent's WeChat AI Agent rollout, continued Alibaba AI cloud monetization and broader enterprise adoption of AI workflows.
Alibaba and Baidu both saw accelerating growth in their AI cloud businesses, while Tencent's AI-driven advertising technology continued to enhance ad effectiveness, the report said. Kuaishou's Kling AI demonstrated strong revenue momentum, indicating the market is moving beyond model benchmarks toward real-world revenue generation.
Daiwa flagged potential AI spin-offs as a valuation catalyst. Kuaishou's Kling AI and Baidu's Kunlunxin suggest a clearer separation between AI infrastructure and application layers, which could unlock re-rating potential for companies with improved AI revenue visibility.
Beyond AI, NetEase stands out for structural margin expansion and a clear game pipeline in the second half of 2026, the broker said. Meituan (03690.HK) has upside potential as food delivery unit economics improved faster than expected. Tencent's gaming and Bilibili's advertising businesses continue to offer solid earnings visibility.
The broker's preference ranking places Tencent and NetEase at the top, followed by Baidu, Bilibili and Alibaba. The emphasis on AI monetization channels — ecosystems and cloud businesses — represents the clearest path to revenue conversion at present, Daiwa said.
The ratings reinforce a growing consensus that Chinese internet companies are entering a monetization phase for AI investments. Investors will watch for Tencent's WeChat AI Agent beta progress and Alibaba's cloud revenue breakdown in upcoming quarters as key validation points.
This article is for informational purposes only and does not constitute investment advice.
