According to a research report from Citigroup, the Chinese internet sector's recent significant underperformance relative to the broader market has intensified, primarily because the sector continues to be seen as a source of funds for the global AI hardware stock rally.

However, this round of selling has created attractive valuation opportunities, and the bank believes and hopes the sector is approaching a bottom.

Even under stress tests assuming a 10% to 30% potential earnings downgrade, related valuations remain highly attractive on an ex-cash basis, and companies with strong core businesses and robust cash flow generation capabilities will be able to weather this cycle.

The bank noted that most Chinese internet companies possess substantial net cash positions.

As of Q1 2026, Baidu (BIDU-SW) had net cash of $27.9 billion (78.8% of market capitalization), and NetEase (NTES-S) had net cash of $24.3 billion (33.1% of market capitalization).

Regarding outstanding share repurchase authorizations, Alibaba (BABA-W) still has $19.1 billion, Trip.com (TRIP.COM-S) has $5 billion, Baidu has $4.8 billion, NetEase has $2.9 billion, and JD.com (JD-SW) has $1.4 billion.

The bank anticipates that these companies may accelerate their buyback pace in the coming weeks.

Based on forecast data in the report, the one-year forward price-to-earnings ratios for major Hong Kong-listed stocks are as follows: TENCENT (00700) at 12.3x (11.8x ex-cash); Alibaba at 12.5x (10.4x ex-cash); MEITUAN-W (03690) at a price-to-sales ratio of 0.8x (0.6x ex-cash); NetEase at 12x (8x ex-cash); Baidu at 13.3x (2.8x ex-cash); JD.com (5.3x ex-cash); and KUAISHOU-W (01024) (4.0x ex-cash).