Goldman Sachs: China's Internet giant's performance outlook for the second quarter focusing on cloud growth and the AI capital expenditure sector is constructive

The Zhitong Finance App learned that Goldman Sachs released a research report saying that in anticipation of the Internet giant that is about to announce its second-quarter results, the expected key topics include: cloud growth as a bright spot, annual capital expenditure increases, trading platform profit inflection points, and increased market attention to the classification plus valuation method. The bank raised the target price of Meituan-W (03690) from HK$116 to HK$123, maintaining a “buy” rating.

Goldman Sachs expects Tencent Holdings (00700) to announce its results on August 12, predicting a 9% year-on-year increase in second-quarter revenue and a 9% year-on-year increase in adjusted EBIT to 75.2 billion yuan. Highlights include AI capital expenditure and resource allocation priorities, mixed-element model strategies, WorkBuddy and WeChat agent metrics, game product lines, and advertising AI upside. The bank predicts that Tencent's game revenue will rise 11% year over year, advertising revenue will rise 18% year over year, and fintech and corporate services revenue will rise 8% year over year, driven by accelerated cloud revenue, but partly offset by weak fintech growth.

Alibaba-W (09988) will announce its first fiscal quarter results on August 20. Goldman Sachs predicts a 9% year-on-year increase in revenue for the second quarter and a 33% year-on-year decline in adjusted EBITA to RMB 26 billion. Highlights include AI capital expenditure funding sources, potential for AI cloud-based and GPaaS profit margins to rise in the next few quarters, Tongyi Qianwen strategy, e-commerce cash flow, and talent retention. The bank expects Alibaba Cloud's growth to accelerate to 45%, the profit margin of the cloud business to improve to 11.1%, and estimates an immediate retail investment of about RMB 10 billion for the next quarter.

On the Meituan side, Goldman Sachs raised Meituan's adjusted net profit forecast for 2026 to 2028, which mainly reflects a decrease in the intensity of takeout competition. It is expected that the profit per takeaway order will improve to 0.26 yuan, 0.80 yuan, and 1.13 yuan each year from 2026 to 2028. The bank predicts that Meituan's second-quarter revenue will rise 10% year on year, adjusted EBIT will rise 56% year over year to 5.8 billion yuan, core local business EBIT will be 5.8 billion yuan, and in-store wine tourism EBIT will be 4.4 billion yuan (profit margin 25%).

Goldman Sachs expects JD Group-S (09618)'s second-quarter revenue to fall 3% year on year, adjusted EBIT to rise 587% year on year to 6.2 billion yuan, and JD retail profit of 13.5 billion yuan (profit margin 4.6%). Highlights include JD's retail growth prospects, shareholder return policies, Joybuy's international expansion, and artificial intelligence applications.

On the Pinduoduo (PDD.US) side, Goldman Sachs predicted an 8% year-on-year increase in revenue for the second quarter and a 4% year-on-year decline in EBIT to 26.7 billion yuan. The focus included Temu's GMV and profitability, main site GMV growth drivers, community group buying strategies, and the application of artificial intelligence advertising technology.

The bank believes that the stock price response of the largest US cloud service providers was positive after the next quarter's results. After the recent adjustment of China's Internet stock prices, the sector prospects are constructive. The sub-industry preferences are cloud and data centers (GDS.US), Century Internet (VNET.US), Ali, Jinshan Cloud (KC.US), gaming and entertainment, e-commerce and travel, and artificial intelligence models in that order.