China's catch up with US tech: not if, but when - SAXO

CHINA'S CATCH UP WITH US TECH: NOT IF BUT WHEN - SAXO

The question for investors is no longer whether China can catch up with the U.S. when it comes to tech, but how far and how fast it will, according to Saxo’s chief investment strategist, Charu Chanana.

"For years, the U.S. has been the uncontested leader in technology—commanding the world’s most advanced chips, deepest capital pools, and strongest platforms," she writes in a note.

"But China’s tech ecosystem is closing the gap."

She flags Alibaba’s latest earnings which showed AI boosting its cloud business as an example of the strength of China's giants, even as U.S. restrictions weigh.

And in fact, chip restriction might actually prove a boon.

"U.S. export controls limit China’s access to cutting-edge GPUs, forcing local innovation. Ironically, that may accelerate China’s drive for self-sufficiency," says Chanana.

Support on the regulatory and fiscal front from Beijing as well as China's 1.4 billion-strong market of consumers, ensures scale that is "hard to ignore", she adds.

However there is a flip side, with China's dependency on lagging hardware contrasting with U.S. leaders like Nvidia and global reach often being constrained by governance, trust, and compliance issues.

All in all, China's tech 10 which includes names like Alibaba, Baidu and Tencent are outperforming the U.S's Mag 7.

The latter trades around 30x forward earnings compared to 13x for China's big names, allowing more room for re-rating if AI and cloud momentum sustain, says the Saxo strategist.

"For now, U.S. megacaps like Nvidia, Microsoft, and Alphabet remain the leaders at the frontier of hardware and platforms. But with valuations stretched in the U.S. and improving in China, the smarter allocation may be to think in two tracks: U.S. tech for global leadership, and China tech for domestic scale.

(Lucy Raitano)

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