Bernstein describes the China Internet sector's opening to 2026 as "a ho-hum start," but emphasizes that developments in artificial intelligence are now the principal determinant of which companies outperform. Analyst Robin Zhu, writing in a note on Thursday, highlights a divergence between two of the market's biggest players - Alibaba and Tencent - centered on their AI strategies and early results.
On Alibaba, Bernstein credits the rollout of agentic features within its Qwen model for helping the company to outperform peers. The firm notes that leading platforms have turned to promotional mechanisms - notably red packet handouts - to spur user adoption of AI tools. Bernstein says these promotions "feel supportive of our view that AI model capabilities are only part of the equation in consumer-facing AI."
At the same time, Zhu cautions that cash incentives may be "a rather roundabout way to drive... search behaviour," and suggests that investors will likely seek firmer evidence that these tactics are producing top-funnel disruption rather than transient engagement.
Bernstein's view of Tencent is more mixed. The firm indicates Tencent continues to extract "solid AI ROI via its ads and gaming businesses," despite scrutiny around its chatbot development. The recent Yuanbao Party issue is cited by Bernstein as reflecting "dual-track AI development inside WeChat," signaling that different parts of the company's ecosystem are moving at different speeds on AI initiatives. Overall, the note asserts that Tencent's shares present a positive risk-reward profile, supported by earnings compounding and the gradual introduction of more AI-enabled services.
For Alibaba, Bernstein believes AI optionality remains substantial after the Qwen3-Max-Thinking launch. The firm argues that while red packet incentives "feel more logical" within e-commerce, investors may eventually demand clearer proof that agentic AI capabilities convert into measurable gains in gross merchandise value and marketing revenue.
Zhu also flags the regulatory environment as an ongoing concern, saying it "remains higher than we'd like." Recent investigations and policy rumours have weighed on sentiment, though Bernstein notes that recent share pullbacks could make the risk-reward trade-off more attractive for some investors.
In sum, Bernstein's note frames the near-term contest among China Internet names as contingent on both model capability and user adoption mechanics. The firm underscores that promotional activity is currently aiding uptake, but that sustainable value creation will hinge on demonstrable impacts to core commercial metrics.