A rotation is underway in Chinese tech.
Investors are rotating out of chip makers as well as AI in stocks and back into the country's biggest internet platforms.
We saw Tencent's shares under pressure after the Chinese tech giant revealed a massive spike in AI spending, and JD.com reporting a double beat thanks to a longer sales period in China.
The company also made solid progress in narrowing losses in its food delivery business.
Net profit also climbing from last year in Q1.
And this is as Wall Street is watching to see if strong core consumer businesses can offset rising AI capbacks.
At the same time, China is doubling down on hardware leadership.
Domestic humanoid robot makers now command over 97% of global shipments, and Unitary Robotics has just priced a $900 million IPO backed by Deepsea and Tencent.
Well, here to break down China's AI rotation and robotics boom.
Brendan Ahern, who is chief investment officer at Crane Shares.
Good morning, Brendan.
Great to have you here.
Thank you so much for joining us.
First and foremost, I do want to get your take on what we're seeing in terms of money rotating out of semis and into internet giants like Alibaba as well as JD.com.
So on the heels of the latest earnings that we just mentioned here, what do you make of what we're seeing in China?
Yes, what we've seen is really that, you know, China is the world's factory, and so a lot of the AI supply chain is really taking place in China.
We saw that overnight with, uh, you know, Lenovo had very, very strong earnings.
They projected that they would make $100 billion US in 2026.
So, I think investors' infatuation or maybe real focus on US semis, uh, Taiwanese, uh.
TSMC in Korea, SK Hex and Samsung, they kind of forgot about many, many of China's role in the supply chain.
And so that's been a very concentrated position amongst investors in China.
At the same time, a large part of the definition of China is Chinese internet stocks listed in Hong Kong.
So we're seeing just as we're seeing here in the US with the Russell 2000 hitting.
And, you know, 52 week high yesterday.
You're seeing a little bit of a rotation out of some of the high flyers into some of the potentially beneficiaries of a diversification of broadening trade.
Yes, and it is earnings season here in the US and we've been paying attention to CAPE, especially amongst the hyper scalers here stateside.
But how are the Chinese hyper scalers avoiding that CAPE penalty that Wall Street has been handing out to the CAC stateside?
Yeah, I think, I think some of the fall in 10 cent is because of the surprise at, at how strong not only on a year over year, but on a quarter quarter over basis their CapE spending for AI actually did grow. pretty good all-around financial results for Q2 from 10 cents, some real pauses, but I think it kind of caught investors a little off guard and that's where we saw that decline overnight.
Uh, Tencent was down about 4% today in Hong Kong.
I would point out that it was, it was actually one of the strongest days, I'd say probably ever from buying into Tencent from investors from mainland China.
We can track that through the southbound Stock Connect.
The Hong Kong Stock Exchange publishes that data on a daily basis, as well as.
Uh, Tencent had very, very high volumes.
It's kind of a quiet summer day, you know, Remy, you and I are some of the few folks out there working on behalf of your viewers, uh, but it's a pretty quiet day, but, but Tencent, really strong volume, really driven by that buying from China.
So, so I think that buy the dip mentality is really important for investors to notice potentially some brighter days ahead for Tencent coming.
Yes, and Brendan, I do want to get your perspective on robotics.
Perhaps you and I should be out on the beach and perhaps robotics should be sitting in for us, but we've had you on the show and we've had a unitary humanoid robot with us while we're doing an interview, and there was a lot of anticipation, especially as unitary robots. is listing in Shanghai at quite a pretty penny when it comes to evaluation with Deepeek as well as Tencent taking strategic stakes here.
So what does this collaboration between AI model developers as well as hardware makers tell us about China's push here when it comes to commercializing embodied AI?
Yeah, I think, I think the real key for investors to understand is that uh the humanoid robotics is, is really not feasible in terms of the AI, that the artificial intelligence is like the nitrous oxide that really takes what's otherwise really like a remote control car, right?
A remote control toy.
Turns it into something that's economically viable.
So I think the AI element is really this next step in the AI trade, which is really the physical world and humanoid robots are definitely coming.
Obviously, Unitre.
But Tesla, Hyundai owns Boston Dynamics, so, there's gonna be a whole host of players in the space, but it's, it's definitely coming and the key is the AI element.
That's really the engine to this, uh, to this growth.
Yeah, and Brendan, you just mentioned Tesla, and new data does show that Chinese robot makers, including Unitree as well as Agabot dot command about 97% of the global humanoid shipments in the first half of this year.
So, given the geopolitical situation between US and China, how big of a threat do geopolitical restrictions pose when it comes to an expansion?
It's certainly something that, you know, we've seen Chinese electric vehicles and hybrids are banned here in the United States.
I mean, having traveled to, I think, about 11 countries this year, I've seen a Chinese EV or Chinese hybrid in every country I've visited other than when I get off the plane back here in New York.
So, so the US is becoming a little bit of an auto archipelago.
Obviously, that's to protect our US auto workers and auto companies and That's a trade-off that you know we're denied the freedom, the choice to buy those cars, but it's obviously protecting a lot of jobs here.
I think it's potentially you'll see a very similar playbook occur here in the US where potentially these Chinese robots are banned, but that doesn't mean the rest of the world is going to do the same.
Uh, the rest of the world already in Japan, you're seeing beta tests for humanoid robots from Unitree being deployed at, uh, both, uh, Narita and Haneda airports that obviously Japan has a, a real demographic issue.
Uh, so, if we want to keep them out and the rest of the world benefits, I, I don't know who the loser is there.
It kind of depends on, uh, one's point of view, I, I suppose.
And Brendan, finally, before I let you go, there's a lot of focus here in the US on inflation.
So given that you've spent so much time abroad and now that you're back stateside, what do you make of the economic situation we're seeing here in the US and what does it mean for global central banks as we head into the rest of 2026?
Yeah, I mean, certainly, it's interesting, you know, last night, uh, MSCI provided their pro forma for their, uh, big index rebalance at the end of this month.
So, every MSCI benchmark, ETF and index fund will be trading at the, at the end of close on August 31st.
The pro forma states that US is 63%.
Of the global market cap, the percent of the country.
So, so the US is very well received globally by investors.
Obviously, you have a 17-year bull market, really strong earnings per share growth.
So there's a justification for that.
I think you're seeing a little bit of this broadening trade.
Investors are recognizing that there's potentially some opportunities without some of the high valuations here.
This is a little bit about positioning that it's a little bit of a crowded trade, I think, in the US and some of these AI trades, not just in Asia, but potentially here in the US.
Um, and you're seeing a little bit of a broadening, but, but net net, you know, there's a lot of positives in the US economy, a lot of positives to the US stock market.
So, so again, it's, uh, it's never easy as an investor.
There's pros and cons, but I think a little bit of the diversification might, might come to fruition over the next several quarters.
Well, Brandon, we will have to leave it there for today, but I appreciate your time.
Thank you so much for joining us, and I hope that you're able to catch up on your sleep.
Have a great day.
