China’s worst tech earnings in three years signal tough comeback

Published Thu, Apr 2, 2026 · 09:27 AM

CHINESE technology companies reported their weakest quarterly profit growth in three years, leaving more doubt for investors looking for a recovery in sector stocks.

Earnings for the 30-member Hang Seng Tech Index fell 30 per cent in the three months through December 2025, compared with a year ago. That’s the worst performance since 2022, when profits were hurt by regulations on the tech sector and a weak recovery in consumer spending following the Covid-19 pandemic.

The index of Hong Kong-listed tech firms is down 14 per cent this year and on the verge of wiping out all its gains since the DeepSeek breakthrough.

Analysts’ forward estimated earnings per share is down 9 per cent in March, as hyperscalers like Tencent Holdings and Alibaba Group Holding reveal hits from massive AI spending.

The latest results were “modestly disappointing”, and a host of negatives augur further pain, according to Homin Lee, a strategist at Lombard Odier Singapore.

“Continued price wars in the quick commerce sector, the rising cost of memory chips, deteriorating capex and monetisation balance, and broader demand and margin questions surrounding the Iran shock are key issues for investors,” he said.

The stock rally sparked last year by excitement over DeepSeek’s low-cost artificial intelligence (AI) model has faded, as the reality sets in over the spending levels required to build data centres and grow usership.

Alibaba has pledged more than US$53 billion of AI investment over several years, while Tencent said it plans to at least double spending to more than US$5.2 billion in 2026.

Investors and analysts have been questioning whether these investments will pay off. At the same time, the market remains skeptical over how effective the government’s “anti-involution” policies will be at easing competition and curbing margin-destroying price wars in e-commerce and electric vehicles.

Alibaba’s stock is likely to be “rangebound” over the next three months in the absence of “clearer evidence that business momentum is improving and investment intensity is becoming easier to absorb,” JPMorgan Chase & Co analysts including Alex Yao wrote in a note after the company’s earnings call.

The recent frenzy over OpenClaw provided a glimmer of hope for a revival in China tech share prices. But regulators have cited security concerns over the open-source technology, raising the specter of Beijing’s previous crackdowns.

“The market is right to pay attention, but it’s too early to price this as China’s next full AI supercycle,” said David Choa, the head of greater China equities at BNP Paribas Asset Management. “Monetisation, stickiness and compliance are still unproven.” REUTERS