Since the explosive rise of DeepSeek, the AI boom has boosted the performance of China's Assets. As of March 11,$Hang Seng Index (800000.HK)$and $Hang Seng TECH Index (800700.HK)$ it has cumulatively risen by 18% and 33%, significantly outperforming other global stock indices.

Meanwhile, due to the uncertainty of Trump's tariff policy coupled with expectations of economic slowdown, investor risk aversion has surged, and the US stock market has underperformed this year.$S&P 500 Index (.SPX.US)$、 $Nasdaq Composite Index (.IXIC.US)$ A drop of 5.26% and 9.71%.

Which group's valuation is cheaper, the Ten Giants of China or the Magnificent 7 of the USA?

Recently, the valuation reassessment of China's Internet giants triggered by DeepSeek is still ongoing. As the stock prices of the 'Tech Magnificent 7' in the USA fluctuate, the statement that the 'Ten Giants of China' surpasses the 'Tech Magnificent 7' has spread.

The 'Ten Giants of China' refers to $BABA-W (09988.HK)$ 、 $TENCENT (00700.HK)$ 、 $MEITUAN-W (03690.HK)$ 、 $XIAOMI-W (01810.HK)$ 、 $BYD COMPANY (01211.HK)$ 、 $JD-SW (09618.HK)$ 、 $NTES-S (09999.HK)$ 、 $BIDU-SW (09888.HK)$ 、 $GEELY AUTO (00175.HK)$ and $SMIC (00981.HK)$ ；

"The Magnificent 7" in the USA refers to $Apple (AAPL.US)$ 、 $Microsoft (MSFT.US)$ 、 $Alphabet-A (GOOGL.US)$ 、 $Tesla (TSLA.US)$ 、 $Meta Platforms (META.US)$ 、 $NVIDIA (NVDA.US)$ and $Amazon (AMZN.US)$ 。

On March 11, Jeff Weniger compared the Magnificent 7 of the US stock market with the top ten in China using PEG (comparing their PEG ratios for 2026, which is the price-to-earnings ratio for 2026 divided by Wall Street's consensus for earnings growth in 2025 and 2026):

According to Jeff Weniger, the results indicate that $NVIDIA (NVDA.US)$ 、 $MEITUAN-W (03690.HK)$ 、 $BYD COMPANY (01211.HK)$ and $SMIC (00981.HK)$ Belongs to 'cheap' Stocks, while 'expensive' Stocks include $Apple (AAPL.US)$ 、 $Tesla (TSLA.US)$ 、 $NetEase (NTES.US)$ and $BIDU-SW (09888.HK)$ 。

The Analyst further explained that the reason for deliberately using quotes is that from a PE perspective, NVIDIA's trading price is 36.8 times the earnings for the 2025 fiscal year and 24.4 times for the 2026 fiscal year. Most people believe this level does not fit the characteristics of cheap stocks.$Baidu (BIDU.US)$The PEG ratio is considered "expensive," with the current PE being 8.5 times the earnings forecast for 2026.

Crucially, observers need to note that four of the Magnificent 7 are still on the right side of the chart, while many Chinese companies are on the left. This suggests that the top ten giants in China, as a whole, still have room for outstanding performance.

Additionally, a recent Research Report from CICC indicated that the recent rise in the Hong Kong stock market primarily relies on valuation-driven growth, with optimistic future expectations accounting for the majority (reflected in the risk premium ERP).

In a vertical comparison, the Hang Seng Index's dynamic PE has recovered from 9.1x before the Spring Festival holiday to around the historical average of 10.8x, corresponding to the 61.2% percentile since data has been available in 2013; the dynamic PE of the Hang Seng Technology has recovered from 15.6x before the Spring Festival holiday to 19.3x, still below the historical average, corresponding to the 33.2% percentile since data has been available in July 2020.

CICC believes that DeepSeek has sparked the market's enthusiasm for re-evaluating technology stocks, but after a continuous month of increase, are technology stocks still undervalued? At an absolute level, they seem so, but considering current profitability, further expansion requires more realization, otherwise there is a lack of space. Domestic technology stocks previously did not participate in the global ChatGPT trend, leading to a widening gap in stock prices and valuation performance between Chinese technology leaders and American technology leaders over the past two years. The dynamic PE and PEG of Chinese technology leaders are only 17.7x and 1.41x, significantly lower than the 27.9x and 2.58x of American technology leaders.

However, the high valuation of leading technology companies in the USA is supported by profitability, which is a relatively weak point for current Chinese technology stocks. Based on this ratio, the valuation is already reasonable.

1) The market cap of leading technology companies in China accounts for 28.9% of all Hong Kong stocks, higher than the USA's 26.6%, but the net income proportion of leading Chinese technology companies is only 13.3%, lower than the USA's 15.7%.

2) The ROE and profit margins of leading technology companies in the USA are generally higher than those in China. If it is assumed that the overall dynamic PE of US technology stocks (28.1x) matches the expected ROE (34.2%), then the overall dynamic PE of Chinese technology stocks (17.4x) and even relative to the expected ROE (16.8%) is already somewhat overvalued, with reasonable valuation possibly in the range of 15-16 times.

3) At the individual stock level, the dynamic P/E average for Chinese technology stocks under comparable company criteria is 21.9x, which is lower than the 34.5x for USA technology stocks, but the average profit margin is only 13.2%, also lower than the 28.4% of USA technology stocks.

Therefore, the estimation of valuation expansion space for the Technology Sector relies more on the improvement of profitability.

1) If referring to the target valuations of individual stocks by CICC Analysts, the valuation of leading technology stocks in China may have a 15% expansion space, but there are differences among individual stocks, mainly supported by MEITUAN and TENCENT.

2) If the expected ROE for leading Chinese technology companies can reach above 30%, then according to the valuations of leading USA technology firms, a doubling of expansion can be achieved. However, as long as profit expectations have not been significantly revised upwards, the valuation expansion of technology stocks still relies on emotional boosts brought by event catalysts, which was also a reason for previous market pauses and adjustments. Under static emotions and overspending on technical aspects, the long-term macro narrative remains to be verified, though it cannot be falsified in the short term, and market upward movement requires continuous catalysts.

What do institutions think?

According to the latest analysis from Goldman Sachs, the main technical force leading to the recent significant drop in US stocks—the sell-off of CTA trend-following quantitative funds—has come to an end, which brings a possibility of short-term stabilization for the US stock market.

Goldman Sachs CTA strategist Cullen Morgan stated that CTA has sold $39 billion (approximately 280 billion yuan) worth of US stocks over the past five trading days and currently holds short positions of about $10 billion, completely clearing out approximately $200 billion of global long positions held until mid-February.

Regarding future CTA Capital Trends, Goldman Sachs predicts:

In the upcoming week: if the market remains stable, the global market will sell off $39 billion; if the market rises, the global market will sell off $24 billion; if the market falls, the global market will sell off $53 billion.

In the upcoming month: if the market remains stable, the global market will sell off $47 billion; if the market rises, the global market will buy $66 billion; if the market falls, the global market will sell off $126 billion.

Regarding China's Assets, Manishi Raychaudhuri, CEO of Emmer Capital and former Asia Equity Strategist at Société Générale and UBS Group, stated on Tuesday that with Capital Trend flowing into Asia, undervalued and still underweight Chinese assets will remain the preferred choice. Even after a certain degree of pullback among the USA's Magnificent 7 in Technology, he remains Bullish on Chinese tech stocks.

Raychaudhuri believes that China Technology Stocks are about to showcase the monetization prospects of China's technological strengths, and that China's technology can significantly reduce the costs of what is known as the "AI application layer." He does not doubt that American Technology Stocks, especially companies with a monopoly in the "selling shovels" sector, can recover, but the current market trend clearly favors this side of Chinese capital.

Goldman Sachs' team believes that global long-term investors have recently increased their participation in China IPOs and stock issuance markets, and due to the increasing volatility of the US stock market, they are increasingly inclined to purchase stocks of Chinese companies.

Citigroup's strategist pointed out that despite the recent rebound, the Chinese stock market remains attractive. Reasons include DeepSeek's breakthroughs in AI technology, government support for the Technology sector, and still relatively low valuation levels.

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Editor/Somer