Goldman Sachs' View on China's Internet in 2026: The Battle for AI Super Gateway Begins, Three Key Themes Identify Alpha Opportunities

Goldman Sachs' View on China's Internet in 2026: The Battle for AI Super Gateway Begins, Three Key Themes Identify Alpha Opportunities

Goldman Sachs believes that 2026 will be a strategic turning point for Chinese internet giants—companies will increase consumer-facing AI investment, competing around the concept of an “AI super gateway,” while focusing more on defending their respective core leadership positions.

According to Chase Trading Desk, the analyst team led by Ronald Keung at Goldman Sachs pointed out in their latest report that this year will mark a “dual-track year” for Chinese internet giants—both intensifying AI investment and defending core market positions. ByteDance’s disruptive breakthroughs in AI, e-commerce, and local services are forcing giants such as Alibaba and Tencent to launch comprehensive strategic pivots: increasing AI To-C investment and capital expenditure on one hand, and fully defending their core market positions on the other. The narrative of ‘profit growth + globalization + shareholder returns’ will replace the logic of broad-based gains to become the main profit driver for the industry in 2026.

Among the giants, Pinduoduo is Goldman Sachs’ core recommendation for 2026. Its 10x 2026E P/E is significantly below the industry median of 18x, and is further enhanced by Temu’s profit inflection point, AI application potential, and strong ‘value for money’ positioning in China’s lower-tier markets—creating notable room for valuation re-rating. Meanwhile, Alibaba (AI full-stack strategy) and Tencent (AI application core beneficiary) will remain the core picks for long-term (1-3 years) allocation.

Industry Turning Point: ByteDance Forces Industry Giants to Pivot

The essence of the 2026 industry turning point is the chain reaction triggered by ByteDance’s “all-out disruption.” As China’s leading internet profit generator projected to reach $50 billion in profits in 2025 (far surpassing Tencent’s $36 billion and Alibaba’s $15 billion), ByteDance’s multi-pronged breakthroughs are directly reshaping industry competition rules.

In AI, ByteDance’s Doubao APP has surpassed 100 million daily active users (DAU), making it the top consumer-facing AI app in China, with daily token consumption reaching 50 trillion—ranking third globally. Its upcoming collaboration with the 2026 CCTV Spring Festival Gala will further expand its user base. On the AI model front, the launches of Doubao-Seed-1.8 and video generation model Seedance1.5Pro showcase its technical leadership in multi-modal domains. In e-commerce, Douyin E-commerce gross merchandise value (GMV) grew 30%+ year over year, now ranking in the industry’s top three, and is expected to surpass Pinduoduo by 2026. In local services, ByteDance’s store-visit business continues to capture market share, reaching GTV scale of 800 billion RMB, directly challenging Meituan’s leadership.

Faced with ByteDance’s attack, strategic pivots by Alibaba and Tencent have become imperative: First, increasing AI investment, with ByteDance, Alibaba, and Tencent’s total AI capex to exceed $60 billion (around RMB 410 billion) in 2026, focused on To-C AI gateways and full-stack technology development. Second, fiercely defending core strongholds—Alibaba is fully consolidating its #1 e-commerce GMV position; Meituan is strengthening its local services lead; Tencent is accelerating the rollout of AI agent features in WeChat, and plans to use QQ as a testbed for social AI applications. Third, optimizing competition dynamics—competition in sectors such as food delivery is gradually becoming more rational, with significant improvements to unit economics.

Amid these strategic pivots, AI becomes the core engine for industry restructuring. Goldman Sachs has identified six key AI themes for China’s internet sector in 2026, covering the entire chain from technology breakthroughs and application adoption to globalization—each will reshape the industry ecosystem:

  1. Advertising & Marketing Transformation: Ad budgets are shifting to ROI-driven ads. Products like Tencent AIM+ and Alibaba’s full-stack push are accelerating penetration. AEO (Answer Engine Optimization) and GEO (Generative Engine Optimization) are new hot topics; advertisers are moving from single SEO strategies to combined “SEO+GEO+AEO” approaches to secure content visibility in AI-driven scenarios.
  2. Model Competition Upgrades: AI model wars focus on long-context processing, multi-modal functionality, 3D world models/physical AI, and low-cost architectures. ByteDance and Alibaba are leading in multi-modal domains, and products like Alibaba’s Gaode Maps world models and PixVerseR1 real-time world models are driving adoption of physical AI and robotics.
  3. Explosion of To-C AI Gateways: 2026 is poised to be the “year zero” of consumer-grade AI super gateways. ByteDance’s Doubao + phone assistant, Alibaba’s Qwen (integrating life services and shopping), and WeChat AI assistant (leveraging mini-program ecosystem) are fiercely competing. While this may temporarily increase inference costs, in the long term commercialization via ads and commissions may change users’ multi-app usage habits.
  4. China's AI Rivalry: Next-gen chip access becomes key to China-US AI model competition. Nvidia’s Rubin chips offer inference performance five times that of Blackwell, while domestic firms have significant advantages in power and infrastructure.
  5. Dual-Track Monetization in Globalization: Chinese AI models are shifting from pure open-source to a “open-source + closed-source” hybrid, with top models like Alibaba’s Qwen3-Max using closed-source strategies for monetization via subscription and API. Coding and multi-modal models are accelerating global reach based on cost and speed advantages, now covering 200+ countries.
  6. Surging Infrastructure Demand: To-C and To-B AI demand is rapidly driving up inference workloads and token volumes. BAT’s AI capex will exceed $60 billion in 2026, spurring cloud service revenue and data center demand. Alibaba Cloud may maintain 30%+ growth, while GDS and VNET are poised to benefit from order growth.

Investment Framework: Three Major Themes Lock in Alpha Opportunities

Goldman Sachs emphasizes that in 2026, Chinese internet investment will move beyond the “broad gains” logic and enter an “alpha stock-picking” era, focused on three major themes: EPS delivery/growth, AI and globalization-driven narrative shift, and shareholder returns—highlighting cloud/data centers, gaming/entertainment, and AI models as the top three sub-sector choices.

1. EPS Delivery/Growth: Anchoring Certainty in Profit Improvement

Focus on companies benefiting from positive order trends, rationalized competitive landscape, and margin improvement—especially data centers (benefiting from AI infrastructure demand), e-commerce/local services (shrinking losses), and tactical selections (new business driving performance).

Goldman Sachs notes that Alibaba benefits from softer food delivery competition, with continued shrinking losses, making it among the fastest profit growers; JD’s instant retail business losses will start narrowing in the second half of 2026, with a clear profit inflection point.

2. Narrative Shift: Unlocking AI and Globalization Re-rating Potential

Focus on stocks with AI tech breakthroughs and robust overseas business, including leading AI models (tech advantage + user growth), global expansion (cross-border e-commerce/overseas gaming profit inflection), and undervalued overseas businesses and cloud services.

Goldman Sachs considers Kuaishou’s video generation model Koling to be technically advanced and experiencing rapid global user growth, making it a beneficiary of the AI model wave. Baidu may realize value unlock via a spin-off listing of Kunlun Chip.

3. Shareholder Returns: Emphasizing Cash Flow and Payout Ability

Screen for companies with stable cash flow and strong shareholder payout orientation, with net cash abundance, dividend potential, or stable payout policy as key focus.

 

 

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