CLSA has released a research report indicating that China's internet sector demonstrated strong performance in 2025. With DeepSeek leading domestic AI trends, the growth momentum is expected to continue into 2026, particularly as competition intensifies in agent AI and generative video applications. China and the United States are projected to engage in direct competition across global AI models, applications, cloud services, and autonomous driving (Robotaxi) sectors. Despite facing geopolitical challenges, Chinese gaming and e-commerce companies continue to experience rapid growth in overseas markets; however, the firm maintains a cautious outlook on the prospects of the domestic e-commerce segment. Regarding investment strategy, CLSA expresses a preference for sectors related to AI, gaming, and health. It forecasts that industry revenue and adjusted EBIT will increase by 12% and 29% year-over-year, respectively, and believes China has the potential to lead globally in the implementation of AI applications. On valuation, the report notes the sector's current 2026 forecast adjusted price-to-earnings ratio is 16.1 times (13.7 times for 2027), representing an approximate 40% discount compared to US peers, suggesting valuations remain attractive. CLSA listed six top picks for 2026, including TENCENT (00700), XIAOMI-W (01810), BABA-W (09988), NETEASE MUSIC (09899), KUAISHOU-W (01024), and JD-SW (09618). It specifically highlighted optimism for BABA-W's cloud business, TENCENT's AI applications, and XIAOMI-W's consumer-grade AI devices.