Shares of ZTE Corporation (HKG: 00763) surged over 6% in early trading, continuing their recent upward momentum. At the time of writing, the stock was up 5.71% to HK$30.00, with a turnover of HK$770 million.

Potential for a Market Re-rating

A recent research report suggests that as investor focus shifts to the recovery phase and AI catalysts re-emerge, ZTE could be in line for a market re-rating. The report highlights the company's collaboration with ByteDance on the "Doubao" AI assistant as a significant potential driver.

AI Phone Collaboration as a Catalyst

This partnership integrates agent, multimodal, and system-level AI capabilities into smartphones. Strong early demand indicators, such as the initial batch of products selling out, demonstrate robust market interest. The report anticipates ZTE will deepen this collaboration, which could pave the way for broader commercialization of AI phones and serve as a major catalyst for sentiment and valuation.

Turning Point and Profit Outlook

The report identifies a key inflection point for ZTE in the second half of 2026, when a low base effect is expected to support a return to positive earnings growth. It is noted that short-term earnings risks have largely been priced in by the market, with expectations already reflecting weakness through the second quarter of 2026.

Near-Term Profit Pressures

Despite the positive long-term catalyst, near-term profits are expected to remain under pressure following a weak first quarter in 2026. This pressure stems from compressed gross margins, increased operating expenses, foreign exchange losses, and rising impairment provisions. However, the market appears to have largely absorbed the impact of these headwinds.