The valuation bubble in the AI industry is significantly constricting the valuation space available for Chinese internet stocks.

From early October of the previous year to the present, Alibaba's Hong Kong-listed shares have experienced a cumulative decline exceeding 50%, boasting a current dynamic price-to-earnings (P/E) ratio of merely 14.6 times. Concurrently, Tencent's stock price has plummeted nearly 40%, with a dynamic P/E ratio of only 14 times. Kuaishou has seen a decline surpassing 55%, resulting in a dynamic P/E ratio of just 9 times...

This extreme valuation sell-off not only mirrors a misallocation of resources within the capital market but also underscores deep-seated biases against Chinese internet stocks.

Many are questioning: Have Chinese internet stocks entirely lost their growth potential? Can the business models within the internet sector continue to innovate?

In reality, the current global AI boom primarily originates from the expanding demand of overseas tech giants. Amazon, Microsoft, Google, and Meta have consistently increased their large-scale capital expenditures, directly propelling this historic AI bull market.

From the demand perspective, the core impetus behind this AI surge is the concentrated procurement by overseas tech giants. Surging demand has triggered a sharp uptick in semiconductor orders for GPUs and memory, compounded by sluggish industry capacity expansion. Companies such as NVIDIA, Samsung, SK Hynix, Micron, and SanDisk have emerged as the primary beneficiaries of this trend.

However, it's crucial to note that order cycles among leading cloud providers cannot fully encapsulate the true landscape of the broader AI market. The commercialization potential of AI applications still necessitates further market validation. Concurrently, if future capital expenditures by global leading cloud providers decelerate, the AI hardware sector, particularly memory, could encounter significant downward pressure.

On June 25, Apple officially declared price hikes for Macs, iPads, and home devices to counterbalance cost pressures stemming from the rapid expansion of AI data centers—currently, memory and storage chips are facing unprecedented shortages, with raw material costs persistently rising.

Apple acknowledged, "The rapid expansion of AI data centers has completely ignited market demand for memory and storage. We've never witnessed component prices escalate so swiftly and sharply for such an extended duration."

Apple's predicament clearly illustrates that escalating memory prices are beginning to exert pressure on consumers. For companies, the ramifications of rising raw material costs are particularly pronounced, likely curbing end-product sales, dampening corporate performance, and consequently influencing overall capital expenditure willingness.

Examining capital market trends, every industry boom is accompanied by a valuation bubble, which ultimately requires gradual absorption by genuine corporate performance. Take the new energy sector as an illustration: following the industry boom, Tesla, a leading company, experienced a maximum drawdown exceeding 70%. Nevertheless, as performance continued to materialize, its stock price continuously recovered, eventually reaching a historic high. In contrast, the valuation bubble generated by the current AI rally far surpasses that of the new energy boom.

Ultimately, regardless of how substantial an industry's growth potential may appear, it must be underpinned by tangible performance. The current AI boom demands a rational market perspective.

In stark contrast to the AI sector's fervor is the persistent valuation sell-off of Chinese internet stocks. After intense industry price wars in prior years, net profits of leading domestic internet companies have generally faced pressure, leading to significant valuation discounts for entities like Alibaba and Meituan.

However, it's undeniable that as mature internet giants, Alibaba, Meituan, and others still boast robust and stable cash flow reserves. The core factor influencing industry valuations and altering market sentiment lies in the strategic disparities between Chinese and foreign tech companies: U.S. tech giants persist in allocating massive capital expenditures to new AI sectors, while domestic internet giants' transformation endeavors lag relatively behind—this is the pivotal reason behind the persistent pressure on Chinese internet stock valuations.

Nevertheless, the extreme price surge in memory chips is unsustainable. As industry supply and demand gradually rebalance, the market valuation logic for AI companies will also undergo reconstruction, compelling the market to reassess and reprice undervalued Chinese internet stocks.

On June 26, Meituan convened its Annual General Meeting of Shareholders. In response to the sluggish stock price, Meituan CEO Wang Xing publicly declared that he has never reduced his company stock holdings since its inception and has no intentions to do so in the future.

He stated that the company will concentrate on solidifying its core business operations and fortifying its fundamental business foundation while proactively addressing current market challenges. On the other hand, he urged the entire internet industry to revert to rational development. Meanwhile, Meituan possesses multiple high-quality external investment assets, with some projects anticipated to yield substantial returns post-listing. The company will divest these investments at the opportune moment to generate more shareholder value and convey confidence to the market.

Meituan CFO Chen Shaohui also bluntly stated that the company's current value is severely underestimated by the market and that Meituan has initiated a stock repurchase program to stabilize market expectations.

Kanjian Finance posits that the current undervaluation of domestic internet giants is now a market consensus. Referencing the breakthrough paths of U.S. tech giants, domestic internet companies must resolutely bet on future core sectors and entirely abandon the outdated development model of cutthroat price wars to escape valuation suppression.

Simultaneously, leading internet companies need to clearly delineate their business boundaries and abandon the previous mindset of boundless expansion. Following this brutal valuation shakeout, we anticipate internet giants like Alibaba and Meituan to concentrate on their core strengths, deepen innovation in their main businesses, and reward the market and investors with sustained performance growth.