Local investors in China are excited about a new stock market trend linked to artificial intelligence. As trading volumes in mainland Chinese stocks, dominated by retail investors, reached record levels this month, one of the main themes centered on generative engine optimization, or GEO. The idea is that advertisers will spend more for brands to appear in AI-generated chatbot results. Part of the shift is due to concerns about a bubble in AI chips and other computing power infrastructure, said Wei Wang, a researcher at Tianjin Business University who also leads 10 investment-focused Chinese panel discussions with more than 3,000 members. The late December announcement of Meta Platforms’ deal to buy Manus also boosted Chinese investors’ interest in agentic AI, Wang said, referring to generative AI tools that can automatically make a series of decisions to produce better results. Manus began developing its agentic AI tools – for tasks such as market research and data analysis – as a start-up in China, before moving to Singapore. “AI agents and their monetization opportunities … will likely be the primary investment theme in 2026,” Bank of America analysts said in a report released earlier this month. “We believe that China’s established internet ecosystems, namely Tencent, Alibaba and ByteDance, have a natural advantage when it comes to integrating AI agents.” “Within the Chinese internet sector, we view Alibaba (Buy) as the best proxy for the AI theme in China,” BofA analysts said, noting that the e-commerce giant also has a strong AI cloud computing business. They rate the stock a Buy, with a price target of $180. This month, Alibaba upgraded its Qwen AI app so that users interacting with the chatbot can shop, order food and pay without leaving the app, thanks to integration with the company’s existing e-commerce platforms. Qwen claims over 100 million monthly active users. Gaming giant Tencent, which operates the WeChat app with around 1.4 billion users, has developed its own AI chatbot and AI-based advertising tools. “We continue to view Tencent as the biggest beneficiary of Internet AI applications in China, given that AI has helped drive long runways of growth across all of its major business segments, gaming, advertising, fintech and cloud,” Goldman Sachs analysts said in a Jan. 19 report. They rate the stock a Buy, with a price target of HK$752. Adapting to changing ad spending ByteDance, which owns TikTok and is not publicly traded, is leading the industrial race in China with the country’s most popular AI application, Doubao, several analysts pointed out. Late last year, ByteDance also began testing how it could integrate Doubao’s AI capabilities into a smartphone. “We see 2026 as a strategic pivotal year for Chinese internet mega-caps, with AI strengthening to…[consumer] investments,” Goldman analysts said. They predict this could be the first year where markets realize potential disruptions in user habits – like more entertainment screen time if AI assistants take over mundane tasks. “Similar to trends seen in the US, we expect more brands/advertisers in China to adopt ROI-based advertising in e-commerce/local services,” the analysts said, predicting that advertising budgets will shift from traditional search engine optimization (SEO) strategies to a combined strategy with GEO and similar. An AI-driven strategy called AEO, or Chinese research firm Analysys, predicted this month that the value of China’s GEO market will skyrocket to 3 billion yuan ($430 million) this year, up from 250 million yuan ($35.9 million) in 2025. They expect further growth to reach 9 billion yuan ($1.29 billion) in 2027. Even then, it still represents only a fraction of China’s online social media advertising industry. According to Wind Information, the rapid development of AI is no guarantee which tools will ultimately produce the greatest business value, but large companies that adapt can likely stay ahead. “Southbound” flows from the mainland to Hong Kong have become “a significant influencing factor, if not a pricing factor, for many Chinese internet stocks,” BofA analysts noted. For stocks such as Alibaba that are also listed in the United States, liquidity is rivaled or exceeded by trading in Hong Kong, according to the report – CNBC’s Michael Bloom contributed to this report.
