China’s top tech stocks are soaring while the ‘Mag Seven’ sink

It’s a sharp reversal of fortunes that few in Wall Street saw coming.

Chinese tech megacaps are leaving their once-unbeatable US peers in the dust as DeepSeek spurs demand for the Asian nation’s stocks, an outperformance that many investors say has room to extend.

An equal-weighted basket of China’s seven tech heavyweights including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. — dubbed the “7 titans” by Societe Generale SA — has gained more than 40% this year. That compares with an about 10% drop in an index of the Magnificent Seven stocks, whose slump has also pushed the Nasdaq 100 Index to the brink of a correction.

It’s a sharp reversal of fortunes that few in Wall Street saw coming. Earlier this year, the Nasdaq gauge had notched yet another record, while Chinese stocks were still marred by years of regulatory crackdown and a tepid consumption recovery. Then almost overnight, DeepSeek upended the perception that it will take years — if ever — for China to catch up to the level of America’s AI supremacy.

China’s tech momentum received another push this week following Beijing’s plan to step up support for tech companies and a spate of new AI tools from the likes of Alibaba. The Hang Seng China Enterprises Index, which carries most of the stocks identified by SocGen, has gained more than 6% this week to its highest since late 2021.

SocGen analysts led by Frank Benzimra see the Chinese titans’ valuation as still manageable despite the recent surge. The basket currently trades at 18 times forward earnings, a discount of more than 40% to the Magnificent Seven, according to a Feb. 28 note.

The brokerage named the Chinese cohort, which also includes Xiaomi Corp., BYD Co., Semiconductor Manufacturing International Corp., JD.com Inc. and NetEase Inc., based on their market cap and growth trajectory.

“The necessary drivers are there for China tech to outperform, including top level government support, recovering earnings, and structural growth theme in AI,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “US tech valuations have run up for two years and now earnings disappointment along with macro factors are driving a selloff,” and that is partly “driving a rotation from US to Europe and China.”