UBS has narrowed down its Chinese synthetic intelligence plays to 2 main firms. With a number of mainland firms having had an opportunity to monetize generative AI previously two years, leaders and laggards are actually rising. “We favor AI-driven and alpha growth names with strong execution,” a crew led by the funding financial institution’s Hong Kong-based strategist Eva Lee wrote in a report earlier this month. “We believe that the sector … has not fully priced in growth prospects yet.” “China’s internet leaders are accelerating AI monetization, backed by domestic chip development and LLM innovation,” the analysts stated, referring to developments within the massive language fashions powering generative AI. Alibaba, Tencent Based on optimistic second-quarter ends in late August, the UBS analysts favor U.S.-listed Alibaba and Hong Kong-traded Tencent within the AI class. Alibaba shares are up 83% within the U.S. for the yr thus far, whereas Tencent’s have gained greater than 54% in Hong Kong. The pair have outperformed their Chinese web rivals Baidu and JD.com , whose U.S.-listed shares are up by 36% and down by 3%, respectively, year-to-date via Friday. Shares of meals supply supplier Meituan are down by greater than 36% in Hong Kong in 2025. Alibaba is the “largest AI enabler in China with full-stack AI cloud infrastructure,” the UBS analysts stated. As for Tencent, it is more likely to profit from “AI enhancement to gaming and advertising [with] potential upside from AI agents.” “In the past quarter, we observed that China internet companies have reaped tangible AI benefits. This is evident in both actual numbers and positive management outlooks, especially in the advertising and gaming sectors,” the UBS analysts stated. Forging forward While it is unclear when Nvidia will resume shipments of its U.S.-compliant H20 chips to China, native firms have been forging forward. “Chip restrictions have not emerged as a major concern for China’s internet giants, which have reported sufficient chip stockpiles for training, and ongoing software improvements that enhance existing chips’ efficiency,” the UBS analysts stated. In specific, the analysts highlighted how their two AI inventory picks have “emphasized the availability of multiple options for inference chips, reducing their reliance on imported chips.” The two Chinese firms are additionally ramping up their spending to seize future AI alternatives. In the second quarter, Alibaba sped up its AI-related capital expenditure by greater than 50% from the common seen over the previous 4 quarters. Tencent greater than doubled its capital expenditure year-over-year, to 19.1 billion yuan within the second quarter, and affirmed its plans to spend extra on AI this yr. “These moves in 2Q25 reflect growing confidence in AI’s long-term potential, with leading companies prioritizing robust, targeted investments to support future growth,” the UBS analysts stated. To be certain, neither firm is completely centered on AI improvement and every nonetheless has different main enterprise segments — e-commerce for Alibaba and gaming for Tencent. Alibaba has been closely subsidizing instantaneous supply in a fierce competitors with rivals JD.com and Meituan, whereas Tencent nonetheless faces uncertainty over gaming rules, regardless of an easing of draconian measures seen just a few years in the past. — CNBC’s Michael Bloom contributed to this report.