An analyst who once questioned the investment potential of Chinese technology stocks said that they are now benefiting from signs of economic improvement and will rebound again when they achieve better profits.

Alex Yao, co-head of TMT research at JPMorgan Asia, said that after experiencing an earlier rise this year, these stocks are now taking a breather, but with the improvement of basic fundamentals such as costs and competition, there is still 20% to 25% upside. In an April report, Yao said the sector had hit bottom.

"If the industry can maintain the profit growth of more than 10% or even 20% in the long term, I think people should reward those companies with sustainable profits," he said in an interview last week.

Tech benchmarks such as Tencent are leading a rebound in China's stock market. Although this has led global funds to increase their weighting of Chinese concept stocks, these stocks have given back some of their gains in the past month as investors want to see profit improvement and more policy support before making further investments.

The Hang Seng Tech Index, which tracks major Chinese technology stocks, rose 38% from its January low to its May peak. Since then, the index has fallen by about 8%. "The top-down view is that if the macroeconomic recovery, e-commerce companies will benefit from the cyclical recovery of consumption," Yao said. "The theme this time is China's macroeconomic stability."

"Macro indicators show early signs of stability, which is the main driving force for the industry's rebound so far this year and will also be a key factor in the future stock price trend." Improvements in consumption and strong exports have also brought some encouragement to traders.

Two years ago, Yao downgraded the ratings of 28 companies, including Tencent and Alibaba, saying the industry was uninvestable under geopolitical and regulatory risks, causing a stir in the market. Although he cancelled the ratings of some of the stocks two months later, the term "uninvestable" has since become a closely related buzzword. The analyst currently holds a buy rating on stocks, including Tencent, Alibaba and Meituan.

However, given that market sentiment is still weak, any rebound in tech stocks may be unstable. Investors are also concerned about the potential impact of geopolitical risks and the price war erupting in China's emerging AI market. Yao said, "The most important thing is for the industry to achieve sustained and healthy profit growth. If you can do this from a fundamental perspective, then this industry is still a very attractive one."