To The Moon

$Goldman Sachs(GS)$ maintains its overweight rating on A-shares and downgrades its rating on Hong Kong stocks to neutral.

[Key Takeaway]

China tech stocks have fallen from early-year highs to near lows. On the surface, it's a pile-up of negative headlines. But beneath lies a clear throughline: Traditional tech giants are trading short-term profits for long-term AI positioning, while the market only wants to pay for "profits today." This temporal mismatch, compounded by HK liquidity being siphoned into pure-play AI names, is reshaping the entire valuation framework for China tech.

1. The Root of Valuation Collapse: A "Temporal Mismatch" Standoff

Traditional tech giants ( $TENCENT(00700)$ , $Alibaba(BABA)$ $BABA-W(09988)$ , $Baidu(BIDU)$ $BIDU-SW(09888)$ ) are making a tough strategic choice: sacrifice near-term margins to ramp up AI infrastructure spending.

But what does the market want right now? Near-term earnings certainty. When Bloomberg forecasts profit growth dropping to single digits for these names, the valuation logic that previously supported them — "high cash flow + stable buybacks" — instantly crumbles. Investors suddenly realize these former "cash cows" are becoming "capex black holes," and the appeal of value-style investing fades.

This isn't fundamental deterioration. It's a valuation model switch — from "dividend discount" to "growth discount" — and the market hasn't yet agreed on the new anchor.

2. Liquidity Siphon: Pure-Play AI Names Are Draining Traditional Tech

Hong Kong's market is witnessing a brutal liquidity redistribution.

Newly listed pure-play AI targets (no legacy baggage, clean narrative) have become the new darlings. Investors simply bet on the "AI future" without having to digest concerns about legacy businesses or calculate the profit erosion from massive capex. Traditional tech giants, by contrast, carry too much cognitive load — defend the old business AND bet on the new story.

The result: capital naturally migrates toward "simpler stories," while tech giants are redeemed like "deposits" — casualties of liquidity outflows.

3. Sentiment Shock: The February "Tax Hike" Butterfly Effect

The February tax hike rumor added an extra panic shock. Though later proven to be a market misreading of telecom tax adjustments — unrelated to internet companies' core operations — in fragile market sentiment, any negative headline gets amplified. This again confirms: current price pressure is largely disconnected from fundamentals; it's driven by sentiment, narrative, and capital flows.

4. Tactical Response: Go With the Trend vs. Contrarian Positioning

Against this backdrop, two divergent strategies emerge:

Trading Layer (Medium-Term): Go with the trend, not against it. Until the valuation logic transition completes, the inertia of market sentiment may continue to weigh on stock prices.

Investing Layer (Long-Term): For true contrarian value investors, short-term volatility is noise. The decline in a good company's stock price is a better long-term opportunity — provided you can endure the pain of "temporal mismatch" and confirm that the company's long-term thesis remains intact.

[One-Sentence Summary]

China tech stocks aren't falling because they've turned "bad." They're falling because they're becoming "expensive" (AI investment phase) while the market still prices them as "cheap" (cash flow phase). When AI spending translates into competitive moats, today's valuation compression will become tomorrow's margin of safety.