Chinese internet equities have seen sharp investor outflows this year as capital flowed toward companies tied to artificial intelligence hardware. Citi says that response has been excessive and has created buying opportunities among several large internet platforms.
In a note outlining its favored names, the bank singled out PDD Holdings Inc DRC (NASDAQ:PDD), Meituan (HK:3690), Baidu Inc (HK:9888), NetEase Inc (HK:9999), Trip.com Group Ltd (HK:9961) and Full Truck Alliance Co Ltd ADR (NYSE:YMM). Citi argues many of these firms are trading close to their cheapest valuations in years even as they continue to produce strong cash flows.
The sector has lagged peers globally as investors redirected funds into AI hardware winners such as NVIDIA Corporation (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing (TW:2330) and South Korean memory-chip makers. That shift has left numerous Chinese internet companies nursing double-digit losses in 2026, according to Citi.
Citi estimates the broader China internet sector is down about 24% this year. The brokerage also notes that several Hong Kong-listed heavyweights - including Alibaba Group Holding Ltd (HK:9988), JD.com (HK:9618) and Tencent Holdings Ltd (HK:0700) - have come under pressure amid the reallocation of investor capital.
Despite the weak price action, Citi says the recent pullback masks the underlying financial strength of a number of firms. PDD and Meituan top the bank's list, while Baidu, NetEase, Trip.com and Full Truck Alliance are also highlighted. A common thread among these companies is sizeable cash reserves and ongoing share-repurchase activity, which Citi views as supportive for equity valuations and shareholder returns.
The bank points out that PDD alone holds roughly $63 billion in net cash. Baidu and NetEase are also noted as having substantial cash cushions. Several large platforms - including Alibaba, Trip.com, Baidu, NetEase and JD.com - retain billions of dollars authorized for buybacks, and Citi expects buyback activity could pick up in the coming months.
Recent shareholder-friendly actions cited by Citi include Baidu's approval of a new $5 billion buyback program and the company's adoption of a first-ever dividend policy. The bank argues these steps, together with strong cash generation, leave the aforementioned stocks looking inexpensive even if profits fall short of expectations over the next year.
While the AI-hardware trade may continue to dominate investor attention near term, Citi expects an eventual rotation back into profitable internet platforms. The brokerage believes investors will favor companies with resilient core businesses, durable cash flows and advancing AI capabilities when sentiment broadens beyond hardware winners.
Key points
- Citi lists PDD and Meituan as its top picks, with Baidu, NetEase, Trip.com and Full Truck Alliance also highlighted.
- Several named companies hold substantial cash reserves and continue share buybacks, which the bank views as supportive for share prices.
- The broader China internet sector is estimated by Citi to be down roughly 24% this year amid a rotation into AI hardware names.
Risks and uncertainties
- Market preference for AI hardware winners could persist in the near term, keeping pressure on internet platform valuations.
- If profits fall meaningfully short of expectations over the coming year, some of the valuation support Citi cites may be weakened.
- Ongoing sector weakness has already pushed several Hong Kong-listed heavyweights under pressure, which could continue to weigh on sentiment.