These Five Stocks are Citi’s Top Picks in the Chinese Internet Sector

Citi has identified five stocks as its top picks in the Chinese internet sector, with a focus on artificial intelligence, cloud computing, and monetization opportunities. The bank sees Tencent's AI investments starting to translate into actual business performance, driven by its strong gaming and social franchises. Tencent is reportedly negotiating to acquire mobile gaming studio SuperPlay for up to $1.5 billion.

Alibaba's cloud computing segment is emerging as the standout growth engine, with the Cloud Intelligence Group posting a 26% year-over-year revenue increase. Alibaba recently settled a $600 million dispute with the U.S. Justice Department over illegal drug sales. Meituan's core local-commerce business turned profitable in the second quarter, leading to upgrades from JPMorgan and Macquarie.

Meituan's food delivery business is expected to remain strong, and gross merchandise volume growth at Temu, backed by effective coupon activity, should offset a slowdown in Duoduo Grocery. PDD Holdings reported strong second-quarter earnings per share, with AI-generated content and image-editing tools becoming the key swing factor for the bank's outlook.