In Wall Street's view of "China AI": Morgan Stanley says "Tencent is the best for 2C," Goldman Sachs says "Alibaba is the best for 2B"

At a critical juncture of explosive growth in AI applications in China, the two tech giants Tencent and Alibaba are vying for the high ground of the AI era through distinctly different paths. One is leading the charge in the consumer-facing AI application space with its WeChat ecosystem, while the other is making inroads in the enterprise-level AI market.

Tencent showcased its AI strategic progress at the 2025 Global Digital Ecosystem Summit. Morgan Stanley analysts believe Tencent has become the best practitioner of consumer-facing AI applications. The company's cloud business focuses on two strategic directions: digitalization and globalization. AI investments have already shown high returns in the second quarter, driving a 20% increase in marketing revenue and a 22% growth in gaming business.

Morgan Stanley maintains an "Overweight" rating on Tencent, with a target price of HKD 700. Analyst Gary Yu stated that Tencent stands out in the consumer-facing AI application space due to its comprehensive application product portfolio and robust WeChat ecosystem. Cloud business CEO Tang Daosheng emphasized at the summit that “truly practical AI applications will drive improvements in industrial efficiency, while internationalization will open up new growth possibilities.”

Goldman Sachs, in another report, pointed out that benefiting from the accelerated adoption of large models by enterprises and the continued strong demand for computing, full-stack cloud vendors represented by Alibaba are ushering in new growth opportunities. Alibaba is in a favorable position due to its leading model capabilities, a 47% share of the Chinese public cloud market, and a diversified chip supply, with room for international expansion.

Based on an optimistic outlook for the industry, Goldman Sachs raised Alibaba's target price from USD 163 to USD 179, maintaining a "Buy" rating. Goldman Sachs specifically increased its valuation of Alibaba Cloud from USD 36 per ADS to USD 43 and raised its growth expectations for Alibaba Cloud in the second to fourth quarters of fiscal year 2026.

Tencent: AI Applications Flourishing, Strong Global Growth Momentum

In terms of digitalization, Tencent has launched a wide range of AI efficiency-enhancing products. The Tencent Cloud 3.0 agent development platform has integrated 600 features and over 12 mainstream models, providing developers with a full suite of services including model training, inference, and computing resource management. In both consumer-facing and business-facing product lines, Tencent has formed a complete AI product matrix.

Morgan Stanley stated that the advertising business achieves precise targeting through AI, enhancing click-through rates and improving closed-loop transactions for WeChat mini-stores and mini-games, thereby increasing the commercial value of each click. The gaming business utilizes AI tools to accelerate content creation, providing enhanced NPC experiences and achieving precise marketing through AI. Enterprise-level products also benefit from enhanced AI capabilities; Tencent Qidian's SaaS sales and customer service platform handled over 100 million customer service responses last year, while Tencent Lexiang's enterprise social and knowledge management platform provides knowledge management services for over 300,000 enterprises. Tencent's electronic signature reduces compliance risks by 80% through AI, with contract review speeds reaching as fast as one minute.

The comprehensive coverage of 2C and 2B AI products demonstrates Tencent's leading position in AI applications. Yuanbao currently ranks among the top three in daily active users of AI-native applications in China, QQ Browser's AI features have seen a 17.8-fold increase in monthly active users since April, Tencent Meeting's AI monthly active users have grown by 150% year-on-year, and Tencent Lexiang supports over 100 question-and-answer formats Accuracy exceeds 92%. On the infrastructure level, Tencent has released an upgraded version of its Hunyuan large model, launching over 30 models, ranking first among global translation models. The company has also introduced several open-source small models, with parameter scales ranging from 0.5B to 13B, and enhanced multimodal capabilities.

International business growth momentum is strong, with Tencent's international business achieving double-digit growth and overseas customers doubling year-on-year. More than 90% of leading Chinese internet companies going overseas have adopted Tencent's models, including key players in gaming, retail, and local services.

In terms of global infrastructure layout, Tencent's business currently spans over 30 industries and more than 80 countries and regions. The company is deepening its global infrastructure construction, having previously announced a $150 million investment to build its first data center in Saudi Arabia, as well as a third data center in Osaka. The expansion of its technical support network is significant, with Tencent establishing nine regional technical support sites, including Jakarta, Manila, Kuala Lumpur, Singapore, Bangkok, Tokyo, Seoul, Palo Alto, and Frankfurt, providing localized service support for global customers.

Alibaba: Adoption rate skyrockets, capturing 47% of China's public cloud market share

The explosive growth in demand for enterprise-level AI applications in China is reshaping the investment logic of the cloud computing industry. Goldman Sachs' latest report indicates that as enterprises accelerate the adoption of large models and computing demand remains strong, full-stack cloud vendors represented by Alibaba are encountering new growth opportunities.

Data shows that the daily Token consumption of enterprise-level large models in China is expected to reach 10.2 trillion in the first half of 2025, a staggering increase of 363% compared to the second half of 2024, reflecting a significant acceleration in the actual deployment of AI in the business sector.

Goldman Sachs cites an Omdia report stating that Alibaba has successfully penetrated most of the Chinese Fortune 500 companies deploying generative AI by 2025, occupying the leading position in this market segment. This business model, which charges based on API calls and Token usage, places large cloud service providers with leading AI models and agency capabilities in a favorable competitive position.

On the other hand, Goldman Sachs believes that the investment narrative for AI infrastructure in China has been reignited following Alibaba's announcement of better-than-expected cloud business revenue and capital expenditures. The firm predicts that capital expenditures for Chinese cloud service providers will grow by 39% year-on-year in the third quarter of 2025, providing the hardware foundation for the continued growth of AI cloud revenue.

Goldman Sachs analysts believe that Alibaba, with its leading model capabilities, 47% share of China's public cloud market, and diversified chip supply, is in a favorable position and has room for international expansion. The firm compares the current market phase in China to the U.S. market at the end of 2022 when ChatGPT was released, at which time the market positively evaluated companies increasing capital expenditures on AI infrastructure