With capex outrunning profits, shareholders in China's AI spenders face dilution and heavier company borrowing, as Alibaba's HK$80 billion placement and Tencent's US$5.7 billion bond sale show.
China’s stock market has lost US$3.5 trillion in value since its May peak, and falling profit estimates are now doing more of the damage than valuations. Bloomberg reported on October 25 that the consensus forecast for 2026 earnings of MSCI China Index members has dropped more than 4% since the end of March, while forecasts for the Hang Seng Tech Index have been cut by more than 13% over the same period.
Third-quarter results have added to the pressure. MSCI China members that have already reported missed consensus by an average of 9%, the second-worst quarterly miss in two years, according to Bloomberg’s calculations. The selloff has spread from AI valuations to the cash needed to keep paying for AI. Bloomberg reported that internet companies racing to fund expensive AI infrastructure are increasingly short of cash, and that some have turned to equity markets.
The new data extends a slide that pushed China’s CSI 300 into a bear market on October 22. It shifts the question for investors from how far AI stocks had run to how much profit China’s largest companies will actually report while their spending keeps rising.
Telecom and internet earnings are falling short as costs climb
China Mobile, the country’s largest telecom operator, gave a concrete example on October 20. Its profit attributable to shareholders for January to September fell 7.9% to RMB106.2 billion, on operating revenue down 1.8% to RMB780.3 billion, TelecomLead reported. The third quarter alone was weaker, with net profit down 12.2% to RMB27.3 billion and revenue down 3.4% to RMB242.3 billion, according to C114. Operating profit for the nine months fell 14.3%, and expenses rose to 86.5% of revenue from 84.5% a year earlier, TelecomLead said.
China Mobile was not alone. Bloomberg cited battery maker CATL, which missed profit expectations amid weak demand and fierce competition, and Ganfeng Lithium, which fell short as prices dropped. Internet companies in the Hang Seng Tech Index are caught in e-commerce price wars, the report said. "The biggest concern remains profitability," Ulrich Urbahn of Berenberg told Bloomberg, adding that "it is too early to conclude that the worst is over."
AI spending is pushing the largest platforms to sell shares and borrow
The cash strain is easiest to see at Alibaba Group. Alibaba sold 710 million new shares at HK$112.70 each in August, raising HK$80 billion (US$10.2 billion), and said all of the net proceeds would go to its AI capabilities. RTHK reported that it was the largest primary follow-on offering by a Hong Kong-listed company. The shares fell 8% when trading opened after the deal. Alibaba’s net profit for April to June had fallen 75% from a year earlier as it stepped up AI capital spending, and the company said it had already spent nearly half of its three-year spending plan, RTHK said. Bloomberg said the placement diluted existing shareholders.
Tencent has turned to debt. It raised about US$5.7 billion in US dollar and offshore yuan bonds on October 13, with tenors of up to 30 years, for general corporate purposes as it expands AI infrastructure and products, Reuters reported. Its capital expenditure more than doubled to RMB96.3 billion in the first half of 2026 from RMB45.9 billion a year earlier. The common thread is that spending on computing equipment and data centers is rising faster than earnings, while investors are trimming their forecasts for those earnings.
Thin trading and limited stimulus leave the market reliant on state funds
Investor appetite has faded with the forecasts. Onshore turnover is near its lowest since July 2025, and outstanding margin debt, money borrowed to buy shares, is at a one-year low, Bloomberg reported. On October 22 the CSI 300 had fallen more than 20% from its June peak and extended its losing streak to 10 weeks, Investing.com reported, citing LSEG data, as investors questioned whether heavy AI infrastructure spending would pay off. IANS noted that weak household consumption remains a major concern.
Policy support is limited so far. China’s economy grew 4.5% in the third quarter, putting growth for the first nine months back inside the government’s 4.5% to 5% target, which Bloomberg said gives authorities little reason to add large stimulus. State funds known as the "national team" have been deployed to keep prices from spiraling, and Bridgewater’s China arm has turned "prudently optimistic," arguing that third-quarter declines were mainly driven by liquidity. William Bratton of BNP Paribas said "policymakers are comfortable with the nature of economic growth."
The consensus numbers are the gauge to follow. Further cuts to Hang Seng Tech estimates when Alibaba and Tencent next report quarterly results would show AI spending still outrunning profits; a halt in the downgrades would be the first sign of a floor.