Earnings from the two biggest names in China tech are the next big watchpoint for clues on whether one of 2025’s hottest stock rallies is back on track.

Investors will closely parse reports from Tencent Holdings Ltd. later Wednesday and Alibaba Group Holding Ltd. on Thursday for details on advertising and cloud revenue growth, as well as how much they are spending on expanding their artificial intelligence businesses.

Expectations are high, with analyst earnings estimates for the Hang Seng Tech Index up more than 30% in the past year, outpacing the broader market. Still, trade concerns have taken some shine off the China tech gauge, which remains down about 14% from a high reached in March on the frenzy over China’s AI advances.

“This will be an exciting quarter for large tech,” said Kok Hoong Wong, head of the institutional equity sales trading at Maybank Securities Pte. “With DeepSeek exploding onto the scene in February, it will be interesting to see how development since has filtered into earnings and what their guidance will be, especially from Alibaba.”

The return to glory for China’s tech stocks has been anything but smooth. The Hang Seng tech gauge surged Monday to enter a bull market on the deal with the US to lower tariffs. Then it dropped on Tuesday as investors fretted that the resulting improved economic outlook will mean a smaller stimulus package from Beijing.

China’s tech sector has been seen as largely resistant to the impact of tariffs given its focus on local consumer spending. Mainland China accounts for 90% of Tencent’s revenue, for example. At the same time, the trade war’s broader macro impact has clouded the outlook for consumption.

“Listed Chinese tech companies are still largely focusing on the domestic market,” said Roxy Wong, senior portfolio manager for Asia and global EM equities at BNP Paribas Asset Management Asia Ltd. “The Chinese economy is still the key for people to increase their allocation to Chinese tech.”

Earnings reports from the sector’s two largest companies will show investors how the companies are coping with the shifting economic outlook and geopolitical landscape while also looking toward the future with AI.

Investors have been bullish despite the uncertainties. Hong Kong-listed shares of AI darling Alibaba are still up 53% this year while Tencent’s are up 21%. Short interest for both has dropped to less than 0.1% of the free float from over 0.4% earlier this year, according to S&P Global data. Options positioning shows reduced investor demand to hedge against declines.

Tencent is expected to report an increase of about 17% in first-quarter advertising revenue compared with a year ago, according to data compiled by Bloomberg. Alibaba is seen posting almost 17% growth in its key cloud business, while its e-commerce business momentum is expected to show continued accelerating from the previous quarter.

Advertising revenue is most important for Tencent, which is “highly linked to the macro-environment,” said David Choa, head of Greater China equities at BNP Paribas Asset Management. The company has heavily invested in AI adoption so look for whether that can help accelerate its ad revenue by creating more interaction between users and the platform, he added.

In addition to how the companies can make money from AI, their plans for investing to grow this new field further are seen as essential. Goldman Sachs Group Inc. expects both Alibaba and Tencent’s capital expenditure to drop in the current quarter given uncertainties over their ability to buy foreign chips.

Source: Goldman Sachs

While reduced spending could lead to more cash for share buybacks and other shareholder returns, it could be a negative in terms of the companies’ ability to develop their AI operations to compete on the global stage.

“The US has been leading capex investment in AI infrastructure for more than a year now,” so investors will be watching China’s efforts to catch up, Choa said. Alibaba has been “at the forefront” in terms of investing in and launching AI, so its resulting monetization and consumer engagement will be essential points, he said.