After deep adjustments by Chinese internet giants, Goldman Sachs remains optimistic about these three major sectors

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China’s internet sector has been under continuous pressure since the start of the year. After conducting its post-earnings-season survey, Goldman Sachs maintains a differentiated allocation strategy across three major sub-industries, listing cloud computing and data centers as the top picks, upgrading e-commerce and mobility to the second tier, while reiterating its rating on the games and entertainment sector.

According to Zhuifeng Trading Desk, Goldman Sachs’ Ronald Keung team stated in their latest report released on April 2 that the median PE ratio for China’s internet sector is around 14x, with earnings growth expectations trending moderately. Goldman believes that sector earnings recovery or narrative shifts—such as a revaluation of AI model/chip infrastructure, a revaluation of overseas businesses, and shareholder returns—will be key drivers for subsequent stock performance.

Goldman Sachs upgraded the rating for e-commerce and mobility sub-sectors from fourth to second, reasoning that the relevant stocks are trading at historical lows; it expects profits for Alibaba, JD.com, and Didi to recover year-over-year in the second half of 2026, thus supporting market confidence.

The report maintains cloud computing and data centers as the top priority sub-sector, with the core logic being the high growth certainty brought by rapid expansion in AI Token demand. Games and entertainment are ranked third, with the reasoning being AI-driven user migration toward leisure and entertainment, alongside healthy growth in advertising revenue.

Cloud Computing & Data Centers: Token Surge Drives Top Pick Status

Goldman Sachs maintains cloud computing and data centers as its top priority allocation, with the core driver being the explosive and sustained growth in AI Token demand, which in turn enhances cloud service pricing power.

ByteDance recently announced that average daily Token calls doubled again over the past three months to 100 billion (from 50 billion in December 2025), ranking among the global top three. Alibaba’s BaiLian MaaS platform saw Token calls grow sixfold in the same period. Goldman expects Alibaba Cloud’s revenue growth for the March 2026 quarter to accelerate to 40% from last quarter’s 36%, while Alibaba management sets a compound annual growth target of over 40% for external cloud and MaaS revenue over the next five years.

From a capital expenditure perspective, Goldman estimates that Chinese hyperscale cloud providers will spend about 58% of operating cash flow on capex in 2026, whereas their US peers average 89%. Goldman estimates Alibaba’s FY2027 capex at RMB 180 billion, up 34% year-over-year; Tencent’s 2026 capex at RMB 100 billion, up 25%. Goldman believes Chinese hyperscale cloud providers’ current operating cash flow plus net cash is enough to support ongoing capex increases to maintain competitiveness.

E-commerce & Mobility: Valuation Low Offers Upside

Goldman Sachs substantially upgraded the rating for e-commerce and mobility from fourth to second, with the core logic being clear valuation discounts, coupled with improved operating trends in Q1.

In terms of core valuation, Pinduoduo’s estimated PE for 2026 is around 9x, with net cash holdings of $70 billion by the end of 2025 (including restricted cash); Full Truck Alliance’s cash-excluded PE is also in the mid-single digits. Goldman notes Pinduoduo’s market cap barely values Temu, and forecasts significant revaluation potential as transaction service revenue accelerates and Temu’s GMV approaches $100 billion (estimated by Goldman) by 2026.

For Alibaba, management expects customer management revenue (CMR) growth to accelerate to mid-single digits year-on-year in the March quarter (only 1% last quarter). Goldman forecasts that JD Retail’s Q1 2026 revenue growth will improve from last quarter’s -2% to flat, and expects growth to accelerate gradually in the second half of 2026 after consumption subsidies (old-for-new) are digested.

Regarding the competitive landscape in food delivery, Goldman believes recent probes into “anti-involution” by the market regulatory authority will lead to more rational subsidies in the delivery sector, improving the competition structure. The report says Alibaba has set a clear profitability target for its instant retail business within three years, and with government regulation involvement, Meituan’s delivery unit economics have a relatively clear path to improvement, though long-term profits will be lower than before competition intensified.

Games & Entertainment: AI Catalyzes Content Consumption Upgrade

Goldman Sachs slightly downgraded the games and entertainment sector from second to third, but maintains a positive outlook overall, reasoning that AI continues to drive user time toward leisure and entertainment, and that advertising revenue remains healthy.

In gaming, Apple recently announced it will cut the standard commission rate for mainland China’s App Store from 30% to 25%, and Google will reduce its Play Store in-app purchase commission from 30% to 20%. Goldman believes these changes will lower channel costs for mobile game developers, expand profit margins, and help broaden the overall mini-game market (which still sustains over 20% annual growth). Tencent, as a key operator, stands to benefit the most. Tencent’s “Little Universe” AI assistant is expected to launch in the second half of 2026, and the Claw intelligence product is rapidly advancing. Goldman believes these products will help Tencent transition from a “latecomer” in foundational models to an AI agent beneficiary.

In entertainment content, Bilibili leverages high-quality long-form video and AI-related targeted advertising. Goldman forecasts its Q1 2026 ad revenue growth at around 26% year-on-year. Kuaishou’s ad business faces dual pressures: declining overseas ads and e-commerce-related tax policies, with Goldman expecting full-year 2026 ad growth to fall to about 6%. The AI video generation tool Kling AI is seen as a highlight for Kuaishou, with estimated revenue of about $356 million in 2026.

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