中国互联网2026年第一季度总结与下半年展望：代理系统及基础设施部署

China Internet 1Q26 Wrap & 2H26 Outlook: Agentic System & Infrastructure Ramp CITI'S TAKE Alicia Yap, CFAAC+852-2501-2773alicia.yap@citi.com Despiterelatively solid 1Q26 print,China’s internet sector has beenunderperforming with YTD return at -13.9% compared with Japan’s +1.4%,Korea’s -2.4%, the US’s -4.7%, India’s -19.9%, SEA’s -24.4%. By contrast,KOSPI has risen +108.9%, Nikkei +32.6%, S&P 500 +11%, HSI +1.6% whileNifty -10.2%. The AI evolution is accelerating beyond models and chatbotsto individual, task-executing agents, and now towards sophisticatedagentic systems that manage and orchestrate these agents at scale. Giventhat compute power remains constrained and high barriers to entry exist forcreating full-stack AI from scratch, we believe companies with deep, layeredAI capabilities and strong capital will prevail. Our preferred picks are Tencentfor its agentic systems, Alibaba and Baidu for their AI full-stack capabilities Brian Gong+852-2501-2747brian.gong@citi.com Vicky Wei, CFA+852-2501-2742vicky.wei@citi.com Nelson Cheung+852-2501-2728nelson.cheung@citi.com Notable takeaways from 1H26 —The rapid iteration of new foundational models byChina's internet giants and research labs, aiming to close the gap with global frontierpeers, captured the spotlight this quarter. However, steep price discounts on tokenplans suggest that intensifying competition and hurt market sentiment amidinternet companies are subsidizing for AI adoption. The easing of subsidies in fooddelivery/quick commerce supports a trend of profit recovery, shifting the focustowards a more sustainable and normalized stage. Internally, AI adoption is boostingproductivity and efficiency within internet companies, while AI is also being applied 2H26 trends: agentic AI in ecosystem & infrastructure demand —1) The focus willfurther shift from AI chatbots to agentic workflows and the orchestration of agentswithin AI systems. In our view, the timely launch of an AI agent in WeChat in thecoming months could attract investment rotation back into applications and 1Q26 wrap & 2Q26 outlook— Of the 45 internet companies in our universe thathave reported 1Q26 results, 21/24 delivered revs/earnings beats, 13/14 reported in-line revs/earnings and 11/7 missed revs/earnings. In terms of 2Q26 guidance, 1/3/2companies beat/flat-lined/missed on rev; on profits, 2 guided in line. Investment risks—Muted China macro-outlook; irrational token pricing; intensecompetition, tightened regulation and internet sector being source of funds. See Appendix A-1 for Analyst Certification, Important Disclosures and Research Analyst Affiliations. Not for distribution in the People's Republic of China, excluding the Hong Kong Special Administrative Region and QualifiedForeign Institutional Investors. Contents 2H26E Outlook: AI Systems & InfraUnderperformance of internet sector over past two months Attractive valuation magnified by strong cash positionKey AI trends in 2H262H26 Sector preferred picks1Q26 Results Wrap1Q26 results wrap: Relatively more positive vs. last quarterHighlights Across Sub-sectorsRamp-up agentic AI use cases and MaaS monetizationFood delivery: Easing competition boosting profitsOnline gaming: Resilient earnings with rich pipelineAdvertising enhanced by AI while macro dampen budgetEcommerce: Soft macro & moderating QC competitionDigital Entertainment: AI threat & enhancementOnline travel: Travel demand impacted by oil price surgeChina Logistics: Earnings recovery in express playersShareholder ReturnsChina Internet Comps 2H26E Outlook: AI Systems & Infra As highlighted in our 4Q25/FY25 wrap report published two months ago, we notedthe following key trends in the coming months. Competition from next-generationAI models will likely benefit hyper-scalers and foundational model companies,while rise of agents diminish the strategic importance of any single AI chatbot. Theonline gaming sector is positioned to leverage AI for operational gains, withmonetization remaining resilient due to the skill-based nature of its core offerings. Underperformance of internet sector over past two months Over the past two months, we believe, investors have treated large-cap, liquidChinese internet stocks as a "source of funds" to pursue the powerful momentumin the global AI hardware trade. Consequently, the solid fundamental performance As shown inFigure 1,the 3-months’ average trading volume for top Chineseinternet companies declined by 20-40% yoy. This trend is particularly pronouncedfor ADR trading volume compared to that of Hong Kong-listed and dual-listed Rotation will happen but may take some time In our view, during the AI evolution cycle, constrained compute power and highentry barriers in cloud and chip development are shifting the competitiveadvantage to companies with full-stack AI capabilities. Hence, companies that cannavigate the challenges and effectively capture value from the AI evolution, from Although we believe the hardware momentum is far