Jefferies Sees Further Upside for Chinese AI Stocks as Valuation Gap Narrows

Jefferies has expressed a bullish outlook on Chinese artificial intelligence stocks, saying the sector still has significant upside potential as the valuation gap with U.S. AI peers continues to narrow. In a recent research note, the investment bank highlighted rising capital expenditure, improving AI model performance, and supportive government policies as key drivers underpinning further gains in China’s AI market.

According to Jefferies, China’s artificial intelligence sector remains at an earlier stage of monetisation compared with the United States. This difference has resulted in a sharper valuation re-rating for U.S. AI stocks so far, but it also leaves room for Chinese AI companies to catch up as earnings growth accelerates. The bank estimated that the combined market capitalisation of its basket of listed Chinese AI stocks has increased by about $732 billion, or 88%, since January 2025, reaching approximately $1.8 trillion.

Despite the strong rally, Chinese AI stocks still represent a relatively small share of the global AI market. Jefferies noted that China AI accounts for around 6.5% of the market value of global AI peers, or roughly 8% when major private companies are included. This comparison suggests that valuations have not yet fully priced in China’s long-term growth potential in artificial intelligence.

The bank also pointed to capital spending as a key factor. AI-related capital expenditure by Chinese hyperscalers between 2023 and 2025 is estimated at around 18% of U.S. levels, with expectations for further increases. Jefferies believes this investment intensity has yet to be fully reflected in current valuations.

On the technology front, the performance gap between leading Chinese and U.S. AI models has narrowed to about 6%, down from 8% previously. New releases such as Zhipu AI’s GLM 4.7 have helped improve the competitiveness of domestic large language models.

At the subsector level, Chinese cloud service providers, AI software firms, and data centre operators continue to trade at a discount to U.S. peers, while integrated circuit design, foundries, and semiconductor equipment stocks command valuation premiums. Jefferies added that a recent government push to accelerate AI adoption across manufacturing and services, along with upcoming IPOs and stronger earnings delivery, could drive further re-rating of Chinese AI stocks into 2026.