According to a report from UBS, confidence in Chinese artificial intelligence has not diminished following a recent market correction, with European investors maintaining a positive outlook on the sector.

The report detailed that UBS recently concluded a week of meetings with European investors. Despite the summer holiday period in Europe, interest in Chinese equities remained strong, with AI continuing to be a primary topic of discussion.

While AI technology stock prices have declined in recent weeks and some investors acknowledged taking profits amid the volatility, investor confidence in the AI tech sector remains firm. The primary focus is on: 1) companies related to China's domestic substitution initiatives and domestic capital expenditure; 2) identifying the next bottleneck; 3) leaders in sub-sectors with reasonable valuations.

Compared to UBS's previous research, investors' understanding of the Chinese AI technology supply chain has broadened, though UBS believes there is still room for further penetration. Investors also recognized UBS's analysis of the Chinese versus global AI tech supply chains.

Beyond AI, a key surprise was that investor interest in Chinese biotechnology exceeded expectations, which UBS speculates is because investors are seeking under-explored areas of Chinese innovation and looking to diversify beyond AI.

Given the extremely low valuations in the Chinese internet sector, investors agreed with UBS's view that internet stocks could serve as defensive plays.

Furthermore, due to strong earnings momentum and a lack of alternative options, investors broadly concurred that the rally in AI tech hardware still has room to run—a common investor sentiment was, "If I sell tech stocks, where else can I put the money?"

Investors are also watching for potential disruption from Chinese AI models. As China strives to catch up in AI capabilities and related infrastructure, investors see it as reasonable to allocate part of their portfolio to the Chinese AI supply chain over the long term.

European investors typically prefer to focus on high-quality segments of the AI tech supply chain with high barriers to entry, and are less inclined to chase cyclical names that have recently benefited from supply shortages.

Investors appeared relatively familiar with and optimistic about some Chinese semiconductor equipment companies, while also being willing to explore other localization areas such as power semiconductors, GPUs, and PCBs.

European investors overall seem more diversified than their Asian counterparts, with many still holding internet companies despite their poor stock performance this year.

Investors agreed that capital flows into AI tech stocks were a primary reason for the internet sector's recent underperformance, and that current low valuations make large internet stocks a reasonable value/defensive play.

Energy independence was another theme of interest for European investors, though UBS believes investors still need more time to familiarize themselves with smaller companies in this sector.

During this round of research, investor interest in biotechnology showed a significant increase compared to before.