Sector Spotlight: Upbeat earnings, AI optimism put Chinese tech stocks in focus

Welcome to the latest edition of “Sector Spotlight,” where The Fly looks at a new industry every week and highlights its happenings. 

CHINESE TECHNOLOGY SECTOR NEWS: NetEase (NTES) CEO William Ding has slashed hundreds of jobs at the company, closed or idled game development studios, and curtailed international investment as he refocuses on a smaller portfolio of games, Bloomberg reported. 

Ryan Cohen, founder of Chewy (CHWY) and CEO of GameStop (GME), has increased his stake in Alibaba (BABA) to $1B, the Wall Street Journal’s Lauren Thomas and Ben Glickman wrote. Cohen now owns roughly 7M shares of the Chinese e-commerce giant.

iQiyi (IQ) announced the pricing of its upsized offering of $350M in aggregate principal amount of 4.625% convertible senior notes due 2030. The notes will bear interest at a rate of 4.625% per year, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, beginning on June 15, 2025. The notes will initially be convertible at a conversion rate of 64,819 ADSs per $200,000 principal amount of notes, which is equivalent to an initial conversion price of $3.0855 per ADS and represents a conversion premium of 27.5% above the Nasdaq closing price of the company’s ADSs on February 19, which was $2.42 per ADS. Shares of iQiyi were down 10% at $2.19 on Thursday following the offering.

NetEase has been directed to divest its overseas holdings, starting with Marvel Rivals, which laid off its Seattle team, VentureBeat’s N. Evan Van Zelfden and Dean Takahashi reported. According to sources, it is possible that NetEase plans to exit all international investments and holdings.

Alibaba and others approached DeepSeek about funding after its rise, but DeepSeek CEO Liang Wenfeng is cautious, The Information’s Juro Osawa and Qianer Liu wrote. DeepSeek claims to rival offerings from Microsoft-backed (MSFT) OpenAI’s ChatGPT and Meta (META) but using a much smaller budget.

Shift4 (FOUR) and Global Blue (GB) announced they have entered into an agreement under which Shift4 will acquire Global Blue for $7.50 per common share in cash. Shift4 is also announced that two current shareholders of Global Blue, Ant International and Tencent (TCEHY), are exploring strategic partnerships with Shift4 and intend to remain shareholders in the combined business. The partnership will build on their existing relationship with Global Blue and explore collaboration with Shift4 on global e-commerce payment products. This will include the distribution of Alipay+, which connects global merchants with 1.6B user accounts of over 35 digital payment methods, and Weixin Pay, the most widely used mobile payment service in China, throughout the Shift4 ecosystem.

Tencent has begun tests to integrate DeepSeek’s AI model into its Weixin messaging app, Sherry Qin of The Wall Street Journal reported. The function is not currently available in WeChat, the overseas version of the app.

EARNINGS RECAP: Shares of Alibaba jumped 10% after the company reported third quarter earnings on Thursday.” This quarter’s results demonstrated substantial progress in our ‘user first, AI-driven’ strategies and the re-accelerated growth of our core businesses. During this quarter, customer management revenue at Taobao and Tmall Group grew 9% as a result of initiatives to enhance user experience and effective monetization. Our Cloud revenue growth reignited to double digits at 13%, with AI-related product revenue achieving triple-digit growth for the sixth consecutive quarter. Looking ahead, revenue growth at Cloud Intelligence Group driven by AI will continue to accelerate. We will continue to execute against our strategic priorities in e-commerce and cloud computing, including further investment to drive long-term growth,” said Eddie Wu, CEO of Alibaba Group. JPMorgan raised its price target on Alibaba to $170 from $125 and reiterated an Overweight rating on the shares. The firm said Alibaba’s Q4 results will change the stock narrative to a “strong and sustainable” earnings growth recovery, driven by e-commerce monetization in the near term and cloud and artificial intelligence profit generation in the mid to longer term. This narrative change will lead to a further valuation re-rating as investors gain more visibility on Alibaba’s core e-commerce profit outlook and cloud revenue outlook, the analyst told investors.

NetEase also posted results on Thursday, noting a change in Q4 revenue mix due to increased net revenues from PC games, including certain licensed titles such as Marvel Rivals. William Ding, CEO and director of NetEase said, “Our new hit titles not only redefined gameplay but also set new industry benchmarks, while our legacy franchises gained fresh momentum through striking enhancements in design, storytelling and immersive content. As our diverse game portfolio expands across more genres and engages an ever-growing global audience, we remain dedicated to fostering creativity and collaborating with top talent and strategic partners to shape the next wave of gaming trends.” Benchmark increased its price target on NetEase to $115 from $105 and maintained a Buy rating on the shares. NetEase reported “mixed” Q4 results, with revenue falling short of consensus expectations but “a solid beat on profitability,” the analyst said. The outlook for games has improved “modestly,” prompting the firm to raise its FY25 games growth projection to 6.5%, up from 5%, the analyst concluded.

iQIYI shares fell 4% following its fourth quarter report on Tuesday. “Since late November 2024, we have launched a series of blockbusters, driving a strong rebound of business performances and reinforcing our No.1 position in total drama market share in Q4 2024, according to Enlightent. With the release of more smash hits, the momentum continued into the start of 2025, which led to a significant increase in subscribing members from the end of 2024 to now.” commented Yu Gong, founder, director, and CEO of iQIYI.

Similarly, Baidu (BIDU) dipped 4% as well on Tuesday after its Q4 earnings release. Robin Li, co-founder and CEO of Baidu said, “With our strategic foresight increasingly validated, we expect our AI investments to deliver more significant results in 2025.” Daiwa downgraded Baidu to Outperform from Buy. Q4 core revenue increased by 1% year-over-year, but its online marketing revenue fell by 7% year-over-year, noted the analyst. Daiwa is concerned about lower search market share, potentially impacted by WeChat’s AI with DeepSeek integration, and cites worsening fundamentals in Baidu’s search and cloud businesses for the downgrade.

ADDITIONAL ANALYST COMMENTARY: Nomura downgraded Baidu to Neutral from Buy with a price target of $98, down from $104. Baidu still has a good chance to win the race in artificial intelligence search, but the potential costs of winning “could be formidable,” the analyst noted. The firm believes Baidu’s efforts to monetize AI search could be “derailed” by competitors’ insistence on a clean and advertising-free AI search in order to grab users. Baidu’s track record with new initiatives in the past decade “may hardly give the market too much confidence about its capability to hold the ground,” contended Nomura.