Top Fund Giants: Chinese AI Giants Possess Greater Investment Value Than US Counterparts

A emerging market fund that has outperformed 97% of its peers is increasing its bets on China’s AI sector, betting on the valuation advantages and application potential of Chinese internet giants like Tencent and Alibaba, which are expected to surpass American tech giants that are heavily spending on expansion.

According to Bloomberg on Friday, Caroline Cai, CEO of Pzena Investment Management, stated that her $3.9 billion fund has recently been increasing its holdings in Tencent Holdings and Alibaba Group.

She believes these companies are undervalued and possess huge potential to deeply embed AI into existing platforms and transform daily life, with considerable upside potential. “The cost of enhancing productivity through AI is not high,” she said in an interview.

Cai’s view on AI investment value sharply contrasts with current market sentiment. Over the past few months, investors have been selling Tencent and Alibaba due to concerns over intensified platform competition, with some funds shifting into emerging AI companies like MiniMax.

Valuation Gap: China’s Internet Companies Have Relative Advantages

Cai’s core logic hinges on the significant valuation disparity between Chinese and U.S. AI companies. Chinese internet companies are generally valued lower than most large U.S. cloud computing giants, yet their potential in AI applications does not match.

In terms of capital expenditure strategies, the paths of Chinese and American tech companies are quite different. The four major U.S. tech giants are expected to spend around $650 billion on capital expenditures by 2026, mainly on building new data centers and related infrastructure.

In contrast, Chinese internet companies are more restrained in their investments—according to Bloomberg industry research, Alibaba, Tencent, Baidu, JD.com, and Meituan are projected to have a combined capital expenditure exceeding $240 billion by 2030. Currently, this group holds a total cash reserve of $224 billion, providing a certain safety margin.

Cai believes the key is not how much money is spent, but where it is spent. “When you examine the quality of these models and their focus on application layers, this might be a more interesting way to monetize AI than in developed countries,” she said.

Portfolio Rebalancing: From Chips to Platforms

To establish new positions in Alibaba and Tencent, Pzena’s emerging market value fund has reduced holdings in Samsung Electronics and TSMC. Cai said these companies are no longer as attractive to the fund as before.

Regarding Samsung, Cai pointed out that as AI demand drove up storage chip prices significantly, the fund’s investment logic had already been realized ahead of expectations. This means the scope for valuation recovery has greatly narrowed, and the cost-effectiveness of holding the stock has decreased.

Currently, the top ten holdings of Pzena’s emerging market value fund still include Samsung Electronics, TSMC, and Alibaba. According to Bloomberg data, the fund has outperformed 97% of its peers over the past five years and has also surpassed 90% of similar products this year. Cai is co-portfolio manager of all Pzena products, managing approximately $67 billion in assets.

Although Cai is optimistic about China’s AI sector, she also admits that it’s still difficult to predict the ultimate winners and losers at this stage. Her strategy is based on this uncertainty—buying companies with transformation potential at lower prices before the landscape becomes clear, diversifying bets. “In the early stages, when outcomes are still unpredictable, this kind of strategy should pay off,” she said.

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