Goldman Sachs' chief China equity strategist Liu Jingjin stated that the stock market rally driven by China's artificial intelligence (AI) boom is far from forming a bubble, as Chinese tech firms still have room to boost valuations and earnings by focusing on AI applications.

In an interview, Liu noted that unlike the U.S. strategy centered on computing power, China is channeling more capital into AI application development, giving investors "reason to believe China may demonstrate stronger AI commercialization capabilities, at least in the near term." He emphasized: "The key question is how companies can translate demand for AI-related products into actual profits. Compared to U.S. counterparts, Chinese firms focusing on applications still trade at more reasonable valuations."

The comments come amid growing global concerns about an AI bubble, where soaring stock prices and massive investments appear detached from fundamentals. Market optimism about China's emergence as an AI power has strengthened since startups like DeepSeek launched efficient low-cost models and tech giants rolled out next-gen AI tools.

"From a valuation perspective, China's AI stock rally hasn't formed a bubble," Liu pointed out, noting that China's top 10 tech firms have a combined market cap of $2.5 trillion versus $25 trillion for U.S. peers—a tenfold gap. Moreover, U.S. tech giants account for about 40% of the S&P 500's total market value, while Chinese tech leaders represent only 15% of major indices.

"The AI narrative will play out in China," Liu stated, adding that "China's AI investment cycle trails the U.S. by about 18 months, leaving room for further growth that could translate into earnings and revenue expansion." Goldman research shows AI is a priority in China's latest five-year plan—the national socioeconomic roadmap that has achieved 90% of development targets in past cycles.

Liu predicted: "China's bull market will continue but at a slower pace, as next year's drivers shift from valuation expansion to earnings recovery." The U.S. investment bank expects Chinese corporate earnings to grow 12%-13% next year, accelerating sharply from this year's projected 2%-3%. After a 48% P/E expansion in the MSCI China Index since late 2022, Goldman forecasts slower valuation re-rating of 5%-10%, with 30% upside potential by 2027.

Earnings growth will benefit from AI investments, China's GDP expansion, anti-involution policies, and global business expansion, Liu said. "Chinese firms are actively going global, with overseas revenue currently around 15% versus 30% for U.S. companies—indicating significant room for market share gains."

Continued capital inflows from domestic and foreign investors will sustain the bull market, with southbound flows potentially setting new records after this year's $130 billion historic high. Retail money keeps shifting from real estate to diversified assets, while institutions increase onshore equity allocations.

"Global investors less sensitive to political or geopolitical tensions are increasingly willing to explore Chinese opportunities, recognizing strong growth potential especially in tech and AI," Liu noted. Although political narratives have dampened U.S. investor interest, Goldman's clients from emerging markets like Mexico, Chile, and the Middle East are actively allocating to Chinese assets, viewing the tech sector as key for long-term growth and portfolio diversification.