China’s AI rally ignites as investors shrug off global disruption fears

Chinese investors and AI companies like MiniMax Group and Knowledge Atlas Technology ignited a significant AI rally in mainland China and Hong Kong markets during February 2026, with stocks more than doubling as investors aggressively chased perceived winners in the artificial intelligence sector. This optimism contrasts sharply with Wall Street's 'AI scare trade' as Chinese market participants focus on AI's potential to penetrate new markets and slash costs, driving a rotation of capital away from traditional internet giants like Alibaba and Tencent toward 'pure-play' AI names. The divergence between the Chinese and US markets reflects fundamentally different approaches to artificial intelligence investment. While American investors are dumping software and wealth management stocks on fears of disruption, Chinese market participants are embracing AI's transformative potential. This divergence is partly fueled by strategic insulation provided by regulatory barriers that limit foreign models like OpenAI, giving domestic Chinese players an uncontested run in the local market. The rotation of capital has been particularly pronounced, with local favorites seeing their valuations explode as the market reallocates resources toward the promising AI sector. The Chinese AI rally is being supported by a 'halo effect' from massive global private funding rounds, with firms like OpenAI reportedly eyeing valuations exceeding $850 billion and Anthropic raising funds at a $380 billion clip. Chinese AI firms are undergoing a significant re-rating as they hit new performance milestones, such as Zhipu's GLM-5 model topping the rankings for open-source models on Artificial Analysis—the highest global ranking ever achieved by a Chinese AI lab. The extreme cost-competitiveness of models from firms like DeepSeek is accelerating adoption across various sectors, including film, media, and enterprise, even sparking secondary rallies in industries that stand to benefit from using these new AI tools. Institutional backing from Wall Street heavyweights has further reinforced the rally, with Morgan Stanley, Jefferies, and UBS all initiating coverage of Chinese AI companies like MiniMax with 'Buy' equivalent ratings. Morgan Stanley has issued particularly aggressive forecasts, projecting MiniMax's revenue could hit $700 million by 2027. This institutional support has helped maintain the narrative that China is still in the 'penetration phase' of the AI cycle, contrasting with the US market, which many believe has moved into the 'anxiety phase.' However, seasoned market watchers warn that the current re-rating may be difficult to sustain if earnings growth fails to catch up with the hype, with growing concerns that investors are ignoring the same disruption risks haunting US markets.