While much of the global investment community remains fixated on the parabolic ascent of US-based artificial intelligence stocks, a compelling argument is emerging for a nascent yet potentially explosive opportunity in Chinese AI assets. This contrarian view, articulated by Jeff deGraaf, Chairman of Renaissance Macro Research, on CNBC’s "Closing Bell," posits that Chinese tech giants, unlike their American counterparts, are merely at the genesis of their AI journey, setting the stage for substantial growth. DeGraaf spoke with Scott Wapner about the technical charts of companies like Alibaba, the broader Chinese internet sector, and the often-debated trust factor in investing in China, offering a fresh perspective for founders, VCs, and AI professionals navigating the global tech landscape.
DeGraaf's analysis hinges on a key distinction: the maturity of the AI cycle in different geographies. He notes that US AI names have been market leaders for two to three years, suggesting a more advanced stage of their growth trajectory. In stark contrast, Chinese AI stocks are exhibiting "big base formations" that are just beginning to break out. This observation implies that while American tech has ridden the initial wave, Chinese companies are only now gathering momentum, having endured a prolonged period of consolidation and a bear market following their 2020 peaks. This differential in market cycle presents a unique window for investors seeking early-stage upside in the AI revolution.
The technical charts, according to deGraaf, underscore this potential. He points to Alibaba (BABA) as a prime example, noting its year-to-date doubling, a move he believes is "just the beginning of a huge, huge move." He projects that Alibaba could "double in the next 18 months," challenging previous highs. This projection isn't merely speculative; it’s rooted in a pattern of recovery and breakout from multi-year lows, suggesting a robust underlying shift in market dynamics. The KraneShares China Internet ETF (KWEB) also reflects this trend, showing strong performance and indicating broader sector strength.
A critical hurdle for many investors considering China is the pervasive "can you trust this trade?" narrative, a skepticism that has shadowed the market for the past couple of years. DeGraaf addresses this directly, suggesting that such concerns often arise at precisely the wrong time for investors. "People didn't worry about it when they were making money," he observed, highlighting the tendency for negative narratives to solidify closer to market bottoms rather than tops. This sentiment, he argues, can be a contrarian indicator, creating opportunities for those willing to look beyond the prevailing consensus.
DeGraaf frames China’s push into AI not just as an economic endeavor but as a strategic imperative, a "compute war" where global leadership is at stake. He emphasizes that it is in China's "own self-interest to at least compete on the AI front," and crucially, "politically it's in their interest to stay in power." This political will to dominate the AI landscape, driven by both economic ambition and national security, provides a powerful, albeit opaque, tailwind for its domestic tech sector. The government's implicit support, even if accompanied by regulatory shifts, ensures a sustained commitment to AI development and adoption within the country.
The market's previous apprehension, stemming from regulatory crackdowns and geopolitical tensions, created a valuation trough for many Chinese tech firms. Now, as these companies demonstrate renewed growth and the strategic importance of AI becomes clearer, that skepticism is beginning to wane. This shift in perception, combined with strong technical indicators, points to a potential re-rating of Chinese AI assets. The market’s current healthy skepticism, deGraaf contends, is actually "just another reason why these things can move and be pretty substantial from here."
The recovery seen in Alibaba and other Chinese tech names is not an isolated event but rather a reflection of a broader, fundamental re-evaluation. As global capital seeks new avenues for AI-driven returns, the relatively untapped potential in China, currently emerging from a period of undervaluation and market skepticism, could offer significant alpha. This presents a compelling narrative for those willing to engage with the complexities of the Chinese market, recognizing the strategic importance of AI to Beijing’s long-term ambitions and the technical strength now visible in these charts.
