Author: Xiao Bing
On September 19, 2014, Alibaba listed on the New York Stock Exchange, closing at $93.89 on its first day. That day, Alibaba's market capitalization was $231 billion, exceeding the combined value of Oracle and Intel.
On June 25, 2026, Alibaba closed at $95.07.
Between these two numbers lies a full twelve years.
At the same time, Meituan closed at HK$65.45, falling below its 2018 IPO price of HK$69.
Pinduoduo hovered around $79, back to its level in June 2020.
Tencent's P/E ratio compressed to 12 times, nearly halved from its ten-year historical average of 25.7 times.
As for those younger Chinese internet companies, Bilibili fell from a high of $156 to $18, a drawdown of 89%; Kuaishou dropped from its Hong Kong IPO day high of HK$417 to HK$44, evaporating nearly 90% of its market value; iQiyi, Zhihu, Douyu, Huya—each experienced drawdowns between 85% and 98%.
An entire generation of Chinese internet assets has undergone collective valuation resets. What framework does the market use to price these companies? Or has the framework itself died?
The Establishment and Removal of Anchors
Looking back, the valuation logic of Chinese internet companies underwent an exceptionally clear process of "anchor establishment - anchor removal."
From 2014 to 2017, the core narrative for Chinese internet companies in global capital markets was "U.S. counterpart discounted."
Alibaba was China's Amazon, Tencent was China's Facebook plus China's Visa, Baidu was China's Google.
This methodology was concise and powerful: first find the valuation multiples of the comparable U.S. company, then multiply by a growth premium for the Chinese market and a governance discount, arriving at a reasonable price. Under this framework, Chinese internet companies generally enjoyed P/E ratios of 20 to 40 times.
Foreign capital flooded in, Chinese tech stocks were a must-have asset—this was the first anchor point.
In 2018, the China-U.S. trade war began. Global capital was forced for the first time to consider a question it had previously deliberately avoided: if Sino-U.S. relations shift from cooperation to competition, are the legal structures of those companies operating in China but listed in the U.S. still reliable? The VIE structure had never received explicit recognition from Chinese law, but no one cared during the bull market. The trade war exposed this hidden wound to sunlight for the first time. The valuation anchor loosened for the first time, but was not yet removed.
In October 2020, the suspension of Ant Group's IPO turned the market's pricing of "Chinese regulatory risk" from a vague discount factor into an explicit core variable. The antitrust storm of 2021 pushed this logic to its extreme. Alibaba was fined 18.2 billion yuan, Didi was investigated the day after its listing, and the after-school tutoring industry was wiped out overnight. Chinese tech stocks shifted from "growth premium" to "regulatory discount."
In 2022, the delisting panic for Chinese stocks reached its peak.
The SEC placed over a hundred Chinese stocks including Alibaba, Baidu, and JD.com on the "pre-delisting list." Although China and the U.S. eventually reached a compromise on audit working papers, the damage was done. Global index funds began systematically reducing their weighting in Chinese stocks, and some institutional investors liquidated entirely due to compliance requirements. The structural exit from the capital side turned the valuation compression from sentiment-driven to liquidity-driven.
In early 2025, the emergence of DeepSeek briefly ignited a wave of hope. Deutsche Bank called it China's "Sputnik moment," predicting the disappearance of the valuation discount for Chinese assets.
Alibaba and Tencent's stock prices rebounded over 60% in the first two months of 2025. However, this AI-narrative-driven revaluation lasted less than half a year before fizzling out. Entering 2026, the Pentagon placed Alibaba and Tencent on its "Chinese military-related companies" list, Anthropic publicly accused Chinese companies of launching large-scale distillation attacks on its Claude model, and Nasdaq introduced new listing rules targeting Chinese stocks, tightening liquidity thresholds. Every attempt to rebuild valuation anchors was swiftly destroyed by new geopolitical shocks.
At this point, the "U.S. counterpart discounted" valuation methodology has completely failed. The market no longer prices these companies based on their business models, growth rates, or profitability.
But it's not that simple.
The "Old Titans" on Both Sides of the Pacific
Shifting focus from the Chinese tech stocks on the NYSE to the American tech giants trading in the same building reveals: What the market has abandoned is far more than just Chinese internet companies.
Microsoft in 2026 was the worst-performing stock among the "Magnificent Seven," down over 20% for the year, falling from near $490 at the end of 2025 to around $360. Its P/E ratio compressed from a five-year median of 34 times to 22 times, the lowest level in three years.
The company's fundamentals remain intact: Azure cloud revenue grew 39% year-over-year, AI business annualized revenue exceeded $37 billion, and quarterly net profit reached a record $31.8 billion.
The market doesn't care about these numbers; it's more concerned about another number: $190 billion—Microsoft's full-year 2026 capital expenditure budget, almost entirely directed towards AI infrastructure. Quarterly capital expenditure alone exceeded the total for the entire year five years prior. Free cash flow dropped from $20.3 billion to $15.8 billion, the gap between profit and cash widening further.
Microsoft's experience is not an isolated case.
In 2026, all seven Magnificent Seven stocks underperformed the S&P 500. The four hyperscale cloud vendors (Amazon, Microsoft, Alphabet, Meta) have combined capital expenditure approaching $700 billion this year. The GPU clusters and data centers bought with this money will only become revenue over a 3 to 5-year depreciation cycle—investment upfront, returns deferred, with free cash flow crushed in the middle.
The deeper issue is: These companies are using massive capital to chase a technological paradigm that may disrupt their very own business models.
Microsoft's core revenue comes from Office subscriptions and Windows licensing, a SaaS model with per-user pricing nearing growth saturation. The AI era's business logic is consumption-based billing, paying per token used.
CEO Satya Nadella has publicly acknowledged that every Microsoft business charged per user will shift to a hybrid "user + usage" model. GitHub Copilot already switched to a fully consumption-based pricing model in June 2026, but the market's concern lies precisely in this: the old model had extremely high profit margins; whether the new model can maintain the same level, no one knows.
From a distance, this picture forms a structural mirror image of the predicament faced by Alibaba and Tencent.
Alibaba's core e-commerce business is a highly profitable advertising engine, as stable as Microsoft's Office, yet the valuation multiples assigned to it by the market keep falling. Tencent's WeChat ecosystem remains the most solid moat in the Chinese internet, but slowing game revenue growth and advertising business facing erosion from short-video platforms parallels Microsoft's search advertising being squeezed by Alphabet.
Old giants on both sides are desperately investing in AI to save themselves—Alibaba is pouring $55 billion into AI infrastructure, Microsoft $190 billion—yet markets on both sides have cast a vote of no confidence on "whether this money can be earned back."
Chinese internet practitioners often attribute their companies' decline to regulatory crackdowns and geopolitics, while American tech practitioners often blame Microsoft's decline on "spending too much." Peeling back the surface narratives, what's happening at the underlying level is the same thing: AI-native companies are redefining the entire technology industry's value chain, and the last generation's platform giants, regardless of nationality, are shifting from "companies defining the future" to "companies needing to prove they won't be left behind by the future."
On the Chinese internet, such stocks have acquired an accurate nickname—Old Titan Stocks.
Nikkei: The Precedent of a Dying Valuation System
This phenomenon of "the valuation coordinate system itself being replaced" is not unprecedented in global capital market history. The closest historical parallel is Japan after 1989.
On December 29, 1989, the Nikkei 225 index closed at 38,915 points, setting its all-time high.
That year, eight of the world's top ten companies by market capitalization were Japanese. NTT's stock price surged to 3 million yen per share two months after its 1987 IPO, with a market cap exceeding the combined value of America's eight largest companies at the time. Tokyo land prices were 350 times those of Manhattan. Sony acquired Columbia Pictures, and Mitsubishi bought Rockefeller Center.
Japanese investors of that era, much like Chinese internet practitioners in 2020, genuinely believed the system they were in would dominate the future of the global economy.
The trigger for the bubble's burst was the Bank of Japan raising interest rates. But the magnitude of the decline is only the most superficial feature of this crisis; the duration and nature of the decline were truly suffocating.
The Nikkei lost half its value in the first half of 1990 alone, and halved again to 14,000 points by 1992. If things stopped there, it would have been just an ordinary bubble burst and valuation correction. But the Nikkei didn't stop. It continued its slow decline for another ten years, falling to 7,600 points in 2003, an 80% drawdown from its peak.
The core reason for this decade-long decline was not the collapse of Japanese corporate competitiveness.
Toyota remained the world's best automaker, Sony continued to create groundbreaking consumer electronics. The problem lay at a deeper level: Global capital no longer believed in the "Japan premium."
Prior to 1989, the market's valuation framework for Japanese companies was "the world's most efficient manufacturing civilization + perpetually growing domestic market + unique corporate governance advantages."
After the bubble burst, these three assumptions were negated one by one. Manufacturing advantage was caught up by South Korea and China, the domestic market fell into deflation and an aging population, and corporate governance proved to be a haven for inefficiency. The old valuation framework died, but a new one was slow to be established.
In 1989, 32 of the world's top 50 companies by market cap were Japanese. By 2018, only Toyota remained.
How long did this vacuum period last? Approximately 25 years. The Nikkei didn't begin a genuine trend reversal until 2012, only reclaiming the 38,915-point level in February 2024. What catalyzed this revaluation was not a comprehensive revival of the Japanese economy.
One specific individual redefined "why one should buy Japanese assets" using a new language.
In the summer of 2019, Warren Buffett began buying shares of Japan's five major trading houses. The logic of this investment was entirely different from how the market had viewed Japan for the previous thirty years. Buffett didn't talk about GDP growth rates, population trends, or technological innovation. His reasons were exceedingly simple: these five companies had low valuations, high dividends, stable cash flows, and were genuinely advancing corporate governance reform. He hedged currency risk with yen-denominated debt financing and used his own credibility to endorse Japanese assets. By 2025, Berkshire Hathaway's stake in the five trading houses had approached 10%.
Buffett provided a brand new valuation language for Japanese assets. The old language was "Japan will dominate the global economy"; the new language was "low valuation + high dividend + corporate governance reform."
Where is the "New Language" for Chinese Internet?
Placing Japan's timeline side by side with the experience of Chinese internet, several structural similarities are impossible to ignore.
The old valuation framework is dead. The failure of the "U.S. counterpart discounted" model is akin to the collapse of the "Japan will rule the world" narrative. The corporate fundamentals of both did not completely deteriorate; what was negated were the macro assumptions underpinning the valuation premium. For Chinese internet, the macro assumption was "the deep integration between the Chinese market and global capital markets will continue"; for Japan, it was "the Japanese model represents the most efficient form of capitalism." Both assumptions have been disproven.
A new valuation framework has yet to be established. The market's current pricing of Chinese internet assets is essentially applying discounts on the ruins of the old framework. Just like Japan in 1995, the market knows the old price was wrong, but doesn't know what the new price should be.
Looking at Japan's experience, this vacuum period could be much longer than most expect. Japan took about 25 years from bubble burst to the market's acceptance of a new valuation framework. The systematic collapse of Chinese internet's valuation system began in 2020, only six years ago. If Japan's timeline has any reference value, the current position might only be the early-to-mid stage of this revaluation process.
However, there are also key differences between China and Japan. Japan's asset revaluation was accompanied by long-term deflation and population shrinkage, and corporate profitability did significantly deteriorate after the bubble burst. Chinese internet's leading companies are still profitable today—Tencent's annual net profit exceeds 220 billion yuan, Alibaba's core e-commerce cash flow remains robust. This means that if a new valuation language can be constructed, the revaluation speed could be faster than Japan's.
What could become the "new valuation language" for Chinese internet?
AI is the most obvious candidate, but also the most contradictory one.
Over the past two decades, the underlying business model of global internet companies has been highly convergent: capture user attention, aggregate traffic onto platforms, then monetize through advertising, e-commerce commissions, or in-game purchases.
AI is shaking the very foundation of this business.
When AI agents can compare prices, place orders, and plan trips for users, users no longer need to open Taobao and scroll page by page. When AI can recommend or even generate content based on preferences, the time users spend "scrolling" on any single platform shortens. When attention shifts from human eyes to AI agent interfaces, the point of traffic entry changes, and the platform's strategic position as a middleman is bypassed. This threatens e-commerce, search, social media, content, gaming—almost every core internet sector.
If any Chinese internet company can lead the transition from an "attention platform" to an "AI infrastructure and service provider," it could potentially acquire a brand new valuation language.
The cruelty of this path is that proactive disruption means dismantling the most profitable old business with one's own hands.
Taobao's advertising revenue is built on merchants bidding for rankings. If AI agents bypass rankings to help users choose products directly, this revenue will shrink. Every step of transformation erodes existing profits, while the profitability of the new model remains unproven.
If you chase AI, you bear the crushing of massive capital expenditure on free cash flow—Microsoft's P/E falling from 34x to 22x is precisely the outcome of this story. If you don't chase AI, you are judged by the market as being left behind by the times.
Microsoft is betting $190 billion on rewriting its revenue architecture. If it wins, it's the infrastructure of a new era. If it loses, it's history's greatest capital misallocation.
Shareholder returns are the second candidate. Both Tencent and Alibaba are engaged in large-scale buybacks; Tencent's dividend yield has risen to 1.25%. This closely resembles Buffett's logic for pricing Japanese trading houses: since the market is unwilling to pay for growth, use real buybacks and dividends to build a valuation floor. However, the current scale of buybacks remains limited relative to the market cap decline, insufficient yet to become an independent pricing anchor.
The current situation of Chinese internet assets is highly similar to Japanese assets around 1995: old framework dead, new framework unborn, the market waits in a vacuum for a person or event that can redefine "why one should buy."
The current position likely marks only the mid-stage of this prolonged revaluation.
This article represents only the analytical views of Trend Research and does not constitute any investment advice. Individual stock analysis mentioned is based on public information. Investors should make independent judgments and bear their own risks.
