Jefferies argues Chinese AI stocks still have room to climb, even after a sharp rally since early 2025. The bank points to a narrowing valuation gap with U.S. peers, driven by stronger capital expenditure and policy tailwinds.

China’s AI market capitalization has surged 88% to $1.8 trillion since January 2025. Despite this surge, it represents only a small fraction of global AI valuations. Jefferies sees further upside as earnings begin to catch up with momentum.

The performance gap between Chinese and U.S. AI models has also narrowed, now at just 6%. Stocks in cloud services and semiconductors are seeing varied results, with some trading at discounts and others commanding premiums to U.S. counterparts.

Upcoming IPOs, stronger earnings, and expanded government support for AI adoption across industries could fuel additional gains through 2026. Investors are watching for signs of sustained monetization in China's AI ecosystem.