CITIC Securities: The 2026 Internet Sector's AI Narrative Enhances Vertical Circuit Presents Structural Opportunities

The Zhitong Finance App learned that CITIC Securities released a research report saying that in 2025, the Internet sector emerged from a volatile upward trend in an environment of repeated external disturbances, and the upward movement was mainly AI-driven value revaluation and liquidity improvements. Looking ahead to 2026, AI is still the core catalyst for upward sector valuations. The core focus: 1) narrative strengthening brought about by model iteration, application implementation, and performance implementation; 2) valuation benchmarking brought about by model companies after listing is expected to further drive the revaluation of AI business of Internet companies. However, for companies with low short-term AI correlation, performance visibility and valuation cost performance will be the core elements of stock selection. It is recommended to focus on vertical leaders with a relatively stable competitive pattern and strong performance resilience, a booming circuit driven by supply innovation, and absolute profit targets under undervaluation.

CITIC Securities's main views are as follows:

2025 review: Valuation rise driven by AI and liquidity easing.

In 2024/2025, the Hang Seng Technology Index rose 19%/23% during the year, while EPS was +27%/-10% (Bloomberg agreed). In 2025, the Internet sector came out of a volatile upward trend in an environment of repeated external disturbances, mainly due to AI-driven valuation fixes supported by liquidity. As of December 24, 2025, the Hang Seng Technology Index NTM PE was 19.3x, at the 42.4% fraction of the past 5 years. At the individual stock level, as of December 22, companies such as YTD Bubble Mart (09992) /Alibaba (09988) /NetEase Cloud Music (09899) /Kuaishou/NetEase Music/BOSS Direct Hire/Tencent Holdings (00700) performed significantly in the sector, achieving increases of 126%/81%/63%/62%/59%/58%/54%/49% in 2025, mainly due to: 1) restoration of valuation performance driven by AI industry trends; 2) Evaluation of emotional consumer performance Double click on the value. Looking ahead to 2026, the bank believes that the implementation of AI applications is expected to further drive valuation increases; for companies with low short-term AI correlation, performance visibility and valuation cost performance will be the core drivers of rising stock prices.

AI: AI is booming, and it is expected that the listing of model companies and the implementation of AI applications will drive value revaluation.

Model capability: Domestic models are catching up at an accelerated pace. Full modality, long context, and agenic ability will be an important iterative direction. In 2025, the large domestic model represented by DeepSeek was able to catch up with overseas model capabilities under limited computing power resources by combining algorithm innovation and AI Infra optimization. According to SuperClue, models such as DeepSeek, Ali Tongyi Qianwen, and ByteDoubao have continued to be in the leading position since 2024H2. The large model achieved rapid growth in token consumption, with average token consumption increasing from 0.12 trillion yuan in May '24 to 50 trillion in December '25. Looking ahead, the bank believes that in 2026, model capabilities will focus on iterating on full modality, long context, and agenic abilities, and drive application development and greater training and reasoning requirements. Furthermore, along with the listing of model companies such as Smart Spectrum and Minimax, it is also expected to be used as a valuation benchmark for Internet models to promote model-side value revaluation.

Infrastructure: CAPEX will continue to expand after restrictions on overseas computing power supply are relaxed and domestic computing power capacity is improved. According to various company announcements and Bloomberg's agreed expectations, Alibaba/Tencent's capital expenditure in 2025 is expected to reach 13,000/82.9 billion yuan, accounting for 12.7%/11.0% of revenue (far lower than the 32.7%/17.5%/25.3%/35.2% of Microsoft/Amazon/Google/Meta), which is mainly constrained by the availability of high-end overseas computing power and the production capacity of domestic chips.

Looking ahead to 2026, the bank believes that Internet companies' CAPEX investment will expand further, mainly due to the easing of overseas computing power supply constraints, the increase in domestic computing power capacity and production capacity, and the overseas expansion of domestic cloud vendors. According to various companies' performance meetings and announcements, in FY25Q3-26Q2, Alibaba has invested more than 120 billion yuan in AI infrastructure and AI product development. The bank expects the company to continue to increase its investment in the previous 3 years to the 380 billion CAPEX plan; Tencent CAPEX will also achieve significant growth in 2026.

AI applications: Business enablement, native applications, and end-side innovation go hand in hand, and AI applications are on the rise. Improving model capabilities lays the foundation for the development of AI applications. 1) AI empowers traditional businesses. AI empowers businesses such as advertising, gaming, e-commerce, etc., and the dividends of improving recommendation accuracy and production efficiency are expected to be quickly released in 2026. 2) Accelerate the iteration of AI native applications. Along with the improvement of model capabilities, the bank expects that in 2026, major Internet companies will increase the launch of AI native applications and integrate a richer content, product, and service ecosystem to compete for higher entry value.

The bank suggests focusing on the iteration of versions and user growth trends of AI native products such as Doubao/DeepSeek/Yuanbao/Qianqun/Quark, as well as the potential for AI native apps such as Ant Afu and Lingguang. As a high-level agent that further deepens the understanding of high-value scenarios, AI agents are also expected to achieve breakthroughs in capabilities and application scenarios in 26 years. 3) AI end-side products such as Beanbag phones and Quark glasses are in full bloom, and are expected to reshape human-computer interaction logic and business models.

Industry perspective: The core focus is on performance visibility and valuation cost performance.

For companies with low AI correlation, performance visibility and valuation cost performance will be the core influencing factors in stock prices. Performance perspective, competitive landscape and macro sensitivity are the core influencing factors. The bank believes that 1) Vertical leaders with a relatively stable competitive landscape are expected to maintain resilient performance. 2) Emotional consumption driven by supply innovation is expected to remain booming. Furthermore, as major instant retail platforms began to focus on optimizing efficiency in 25Q4, the bank believes that if the competitive intensity of the industry slows marginally in 2026, core players will save opportunities for stock price reversal.

Risk factors:

Liquidity easing fell short of expectations, leading to a decline in the market valuation center; Internet companies' performance recovery fell short of expectations due to cost reduction and efficiency falling short of expectations; new business and new market expansion fell short of expectations, or investment losses exceeded expectations; investment strategies such as risk reduction of core shareholders; and progress in policy implementation fell short of expectations.