While Wall Street is gripped by the "AI fear trade," with investors dumping software and asset management stocks out of fear of disruption, the Chinese market is moving in the opposite direction.

This optimism is driven by AI's potential to penetrate new markets and dramatically reduce costs for end users. This has created a sharp divergence between the two largest economies. As a result, the valuations of local favorites like MiniMax Group Inc. (HK: 970) and Knowledge Atlas Technology JSC Ltd. (Zhipu) (HK: 725) have soared.

In February alone, these stocks more than doubled. This was fueled by capital rotation from traditional internet giants like Alibaba and Tencent into pure-play AI companies. Strategic isolation—thanks to regulatory barriers that limit foreign models like OpenAI—has given these domestic players a clear, uncontested opportunity in the local market.

Domestic Dominance and the Performance Halo Effect

The euphoria in Chinese AI is fueled by the "halo effect" of massive global private funding rounds. With OpenAI reportedly targeting a valuation exceeding $850 billion and Anthropic raising funds at $380 billion, Chinese companies are experiencing significant revaluation.

Jefferies analysts believe Chinese AI valuations still have significant upside potential, especially as local labs achieve new performance benchmarks. Zhipu's latest model, GLM-5, recently topped the open-source model rankings on Artificial Analysis. This is the highest global ranking ever achieved by a Chinese AI lab. This technological advancement, coupled with the extreme cost competitiveness of models from companies like DeepSeek, is accelerating adoption in the film, media, and corporate sectors. This has even sparked secondary rallies in industries that stand to benefit from these new tools.

Institutional Support and Sustainability Risks

Wall Street heavyweights are lending additional credibility to the rally. Morgan Stanley, Jefferies, and UBS have initiated coverage of MiniMax with ratings equivalent to "Buy." Morgan Stanley issued particularly aggressive forecasts, suggesting that MiniMax's revenue could reach $700 million by 2027.

This institutional support has reinforced the narrative that China is still in the "penetration phase" of the AI ​​cycle. In contrast, many believe the US has entered the "anxiety phase."

However, seasoned market observers warn that the current overvaluation may be difficult to sustain unless profit growth catches up with the hype. Concerns are growing that investors are ignoring the same risks of disruption plaguing US markets. However, for now, momentum remains firmly with pure-play developers.