Summary of Key Points
Over the past five years, the logic behind the market valuations of Chinese technology companies has undergone a dramatic shift. The narrative has evolved from 2021, where internet platforms focused on using user traffic to drive growth and scale in exchange for higher valuations, to 2026, where hard technology companies are valued for their irreplaceable strategic importance. The focus has shifted from the certainty of growth to the necessity of holding a key strategic position. The investors have changed from foreign capital and star public funds to state-owned assets and patient capital, and the valuation methodology has shifted from cash flow discounting to strategic pricing that reflects the companies' potential role in the future. Under the new narrative, hard technology companies like ChangXin, YuShu, and DeepSeek have received extremely high valuations, while companies like REDnote, which adhered to the older narrative, need to “mutate” by incorporating AI elements to be reaccepted by the market. Ultimately, all narratives must be supported by tangible performance; the market will punish those companies whose stories do not translate into real business results.
I. The Transition from “Traffic Empires” to “Strategic Necessities”
In 2021, the tech industry was about buying into the certainty of profitability. Internet platforms emphasized their user bases (MAU) and revenue generation efficiency (ARPU) to justify their valuations—examples included Tencent’s HK$7.3 trillion and Meituan’s HK$2.6 trillion market values, both based on the concept of “burning money to grow and then generating profits.” At that time, valuations were determined by price-earnings ratios (P/E) or revenue multiples, with investors coming from North China and star funds, and the main market channels being the US and Hong Kong stock markets.
In 2026, the focus has shifted to the necessity of having these companies in the market. Companies like ChangXin, which are crucial for national strategic initiatives in storage technology, Cambricon (seen as China’s equivalent to NVIDIA in AI computing power), and YuShu (a leader in embodied intelligence robots), can command high valuations even without immediate profitability. Their value is based on their potential to survive and gain a competitive edge globally.
II. The “Star Players” of the New Narrative: Who Are the Ones Being Frenziedly Pursued by the Market?
- ChangXin Technology: Its market value soared to HK$3.28 trillion on its first day of trading in 2026, surpassing Tencent to become the largest Chinese technology company by market value. Its story revolves around the substitution of imported storage chips with domestically produced ones, which are essential for AI, smartphones, and servers. The market is willing to pay a high price for this strategic asset, even though its current profit margin is modest.
- YuShu Technology: Its stock price soared by 629% on its debut, with a valuation that had only been HK$12.7 billion 14 months prior, now reaching HK$34.18 billion. YuShu is seen as a pioneer in embodied intelligence robots and a key player in the robotics industry, making it extremely competitive despite its lack of profitability.
- DeepSeek: Although not yet listed, its valuation has reached HK$500 billion. Its story highlights a small team’s ability to challenge giants; the release of its R1 model caused NVIDIA’s stock price to drop by 17%, perfectly fitting the narrative of domestic substitution, AI innovation, and global competition. The company’s mysterious founder (similar to Bitcoin’s Satoshi Nakamoto) has contributed to its widespread attention.
III. The Struggle of Companies Using the Old Narrative: The Case of REDnote
REDnote is planning to go public with a valuation of around HK$500 billion, but it is still relying on the old narrative of attracting users through a monthly active user base of 400 million, generating revenue through advertising and e-commerce, and creating a closed-loop ecosystem of product recommendations. With projected profits of $3 billion in 2025, its P/E ratio is only 17-23 times, much lower than Tencent’s 35 times in 2021. The reason for this lower valuation is that the old narrative is no longer appealing to investors.
To be valued higher, REDnote needs to transform its business model to align with the new AI-driven trends, such as using AI to provide more targeted product recommendations. Otherwise, it may face competition from AI-powered apps like MiniMax, which can steal its user traffic.
IV. The Risks of Overrelying on Narratives
Narratives alone are not enough; they must be supported by tangible performance. For example, after the initial public offering of Smart Spectrum, its stock price dropped by 20% within a day, and its market value plummeted by over 60%. MiniMax’s stock price also fell by 80% from its peak, and investors who bought at high prices lost 37% within two days. These examples show that even the most compelling narratives require solid financial results to sustain their value.
V. A Global Perspective: Both China and the US Are Creating New Narratives
The tech industry worldwide is undergoing similar shifts:
- SpaceX’s IPO valuation of $1.77 trillion sets a new record, focusing on the narrative of Mars colonization and a global internet network based on satellite technology.
- Anthropic, an AI company, is valued at $2 trillion, higher than Saudi Aramco.
- OpenAI is also preparing for an IPO.
The difference between China and the US lies in their priorities: while the US focuses more on pure AI innovation (like OpenAI), China emphasizes strategic autonomy (like ChangXin). However, both are investing in the future of technology leadership. The valuations of these companies will influence each other; for instance, OpenAI’s listing is likely to affect the valuations of Chinese AI companies.
In Conclusion
The market is always creating new narratives, but the focus has shifted from “how much money can be made” to “how important a company is to the country or the world.” Ultimately, only companies that can deliver tangible results will be successful. Narratives that do not translate into real business performance will be abandoned by the market.