Goldman Sachs' View on China's Internet in 2026: The Battle for AI Super Entry Has Fully Begun, with Three Major Themes Locking in Alpha Opportunities

Goldman Sachs believes that 2026 will be a strategic turning point for China's internet giants—companies will increase their investments in AI aimed at consumers, compete around the "AI super entrance," and focus more on defending their respective core leading positions.

According to the Chasing Wind Trading Desk, Goldman Sachs' analyst team led by Ronald Keung pointed out in their latest research report that this year will be a "dual mainline year" for China's internet giants, with increased AI investment and defense of core market positions—ByteDance's breakthrough impacts in AI, e-commerce, and local services are forcing giants like Alibaba and Tencent to initiate a comprehensive strategic pivot, increasing investments and capital expenditures in AI To-C while fully defending their core market positions, with "profit growth + new global narrative + shareholder returns" replacing the logic of broad market rises, becoming the core profit line of the industry in 2026.

Among the giants, Pinduoduo has become Goldman Sachs' core recommendation for 2026. Its 10x 2026 EP/E is significantly lower than the industry median of 18x, combined with Temu's profit inflection point, AI application potential, and the solid "cost-performance" mindset of users in the domestic sinking market, indicating significant room for valuation reassessment; while Alibaba (with its full-stack AI layout) and Tencent (core beneficiaries of AI applications) remain core targets for long-term (1-3 years) allocation.

Industry Turning Point: ByteDance Forces Strategic Pivot of Industry Giants

The industry turning point in 2026 is essentially a chain reaction triggered by ByteDance's "comprehensive breakthrough." As the leading profit maker in China's internet sector with a profit of $50 billion in 2025 (far exceeding Tencent's $36 billion and Alibaba's $15 billion), ByteDance's multiple breakthroughs have directly rewritten the rules of industry competition.

In the AI field, ByteDance's Doubao APP has become the number one consumer-level AI application in the country with over 100 million daily active users (DAU), with a daily token consumption of 50 trillion, ranking third globally, and its collaboration with the 2026 CCTV Spring Festival Gala will further expand its user base; in terms of AI models, the release of Doubao-Seed-1.8 and the video generation model Seedance1.5Pro showcases its technological leadership in the multimodal field. In the e-commerce sector, Douyin's e-commerce GMV has grown by over 30% year-on-year, already ranking among the top three in the industry, and is expected to surpass Pinduoduo in 2026; in the local services sector, ByteDance's in-store business continues to capture market share, with GTV reaching 800 billion yuan, posing a direct challenge to Meituan's leading position.

In the face of ByteDance's offensive, strategic pivots by giants like Alibaba and Tencent are imperative: first, increase AI investment, with total AI capex for ByteDance, Alibaba, and Tencent exceeding $60 billion (approximately 410 billion yuan) in 2026, focusing on To-CAI super entrances and full-stack technology; second, firmly defend core positions, with Alibaba fully consolidating its first position in e-commerce GMV, Meituan strengthening its local service advantages, and Tencent accelerating the implementation of AI agent functions in WeChat, even planning to explore social AI applications using QQ as a testing ground; third, optimize the competitive landscape, with the "involution-style competition" in areas like food delivery gradually rationalizing, significantly improving unit economic efficiency

Core Trends: Six AI Themes Restructuring Industry Ecology

Under the strategic shift, AI has become the core engine for industry restructuring. Goldman Sachs has identified six key AI themes for China's internet by 2026, covering technological breakthroughs, application implementation, globalization, and more, each of which will reshape the industry ecology:

1. Transformation of Advertising and Marketing: Advertising budgets are concentrating on ROI-oriented advertising, with products like Tencent AIM+ and Alibaba's full-stack push accelerating penetration. AEO (Answer Engine Optimization) and GEO (Generation Engine Optimization) have become new hotspots, with advertisers shifting from a single SEO strategy to a combination of "SEO + GEO + AEO" to ensure content visibility in AI scenarios.
2. Upgraded Model Competition: The AI model competition focuses on long context, multimodal, 3D world models/physical AI, and low-cost architectures. ByteDance and Alibaba are leading in the multimodal field, with Alibaba's Gaode Map world model and PixVerseR1 real-time world model promoting the implementation of physical AI and robotics applications.
3. Explosion of To-C AI Entry Points: 2026 will be the "year of consumer-grade AI super entry points," with intense competition from ByteDance's Doubao + mobile assistant, Alibaba's Qwen (integrating life services and shopping), and WeChat AI assistant (relying on the mini-program ecosystem). Although this will temporarily increase reasoning costs, it will achieve commercialization through advertising and commissions in the long term, potentially changing users' multi-App usage habits.
4. China's AI Struggle: The ability to acquire next-generation chips has become key in the Sino-US AI model competition. The inference performance of Nvidia's Rubin chip is five times that of Blackwell, while domestic companies have significant advantages in power and infrastructure.
5. Global Dual-Track Monetization: China's AI models are shifting from purely open-source to a combination of "open-source + closed-source" models. Top models like Alibaba's Qwen3-Max adopt a closed-source model, monetizing through subscriptions and APIs; coding and multimodal models are accelerating global penetration with cost and speed advantages, covering over 200 countries.
6. Surge in Infrastructure Demand: The demand for To-C and To-B AI is driving rapid growth in inference demand and token volume. BAT's AI capex will exceed $60 billion by 2026, boosting cloud service revenue and data center demand. Alibaba Cloud is expected to maintain over 30% growth, benefiting GDS, Century Internet (VNET), and others from order growth.

Investment Framework: Three Themes to Lock in Alpha Opportunities

Goldman Sachs emphasizes that investment in China's internet will bid farewell to the "broad-based rally logic" in 2026, shifting to an alpha era of "selective stocks." The focus will be on three major themes: EPS delivery/growth, changes in AI and globalization narratives, and shareholder returns, while clearly identifying cloud and data centers, gaming and entertainment, and AI models as the top three preferred sub-industries.

1. EPS Delivery / Growth: Anchoring Profit Improvement Certainty

Focus on targets with improving orders, rationalized competitive landscapes, and rising profit margins, particularly in data centers (benefiting from AI infrastructure demand), e-commerce and local services (narrowing losses), and tactical targets (new business driving performance) Goldman Sachs pointed out that Alibaba benefits from the easing of competition in food delivery, with losses continuing to narrow, making it one of the fastest-growing giants in terms of profitability; JD's instant retail business losses are expected to narrow starting in the second half of 2026, with a clear profitability inflection point.

2. Narrative Shift: Exploring the Potential of AI and Globalization Revaluation

Focus on targets with breakthroughs in AI technology and overseas business breakthroughs, primarily looking at AI models (technical advantages + user growth), globalization layout (cross-border e-commerce / overseas gaming profitability inflection points), underappreciated overseas businesses, and cloud service companies.

Goldman Sachs believes that Kuaishou's video generation model can leverage technological leadership and rapid global user growth, making it a beneficiary of AI models; Baidu is expected to unlock value through the spinoff of Kunlun Core.

3. Shareholder Returns: Emphasizing Cash Flow and Return Capability

Select targets with stable cash flow and strong shareholder return willingness, focusing on companies with ample net cash, potential for dividend increases, or stable dividend policies