China’s AI Boom Has Set Markets To Outshine a Slowing Wall Street

Key Takeaways

• European and Chinese tech firms are rebounding strongly, with their stocks outperforming the S&P 500.
• The Magnificent Seven stocks surged post-election but are now declining.
• Chinese tech stocks have climbed 29% in 2025, fueled by AI advancements and Hong Kong’s HK$1 billion bet in AI research.
• Analysts believe China’s stock market rally may have long-term momentum.

After years of regulatory crackdowns and geopolitical uncertainty, Chinese tech stocks are surging, fueled by AI breakthroughs, government stimulus, and investor-friendly policies.

Meanwhile, once-dominant U.S. tech giants are showing signs of fatigue.

The shift is raising questions about whether China’s market could outpace the S&P 500, challenging the long-held belief that U.S. assets remain the best bet for investors.

Chinese Stocks Surge as U.S. Tech Stumbles

Since Donald Trump began his second presidential term, European and Chinese tech firms have staged a strong comeback after years of trade wars and regulatory hurdles. In 2025, their stocks have outperformed the S&P 500, drawing increased investor attention.

U.S. tech giants, meanwhile, are losing momentum. The Magnificent Seven—Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—rallied post-election but have since slowed.

Tesla, for example, surged after Trump’s victory but has since dropped more than 27% year-to-date. Nvidia, once a market darling, has fallen over 14% in 2025 alone.

“Investors have moved from believing in ‘TINA’—There Is No Alternative to U.S. assets—to ‘TIARA’—There Is A Real Alternative,” said Andy Wong, a senior Hong Kong-based executive at Pictet Asset Management.

China’s market is heating up, with the Invesco China Tech ETF (CQQQ) up 16% year-to-date, far outpacing the S&P 500’s modest 1.4% gain.

Government stimulus and investor-friendly policies have helped lift major Chinese tech firms, including Alibaba (BABA) and electric vehicle makers BYD (BYDDF), Li Auto (LI), and XPeng (XPEV).

AI Fuels Market Optimism

China’s market rally has been largely driven by its tech sector, which has surged 29% in 2025, reaching three-year highs.

Investors are eyeing opportunities in technology, defense and consumer sectors, especially as Chinese stocks remain 30% below their 2021 levels.

The Hang Seng Index, for example, trades at just seven times projected earnings—compared to 20 times for the S&P 500.

Concerns remain over past government crackdowns and broader economic uncertainty. However, investor confidence is rising following AI startup DeepSeek’s debut and the potential for fiscal stimulus to boost consumption.

Hong Kong is also expanding its AI and digital assets initiatives , pledging HK$1 billion for AI research and enhancing the Cyberport AI Supercomputing Centre.

Meanwhile, the region is tightening fiscal policy, targeting a 7% reduction in public spending by 2028—a move that has bolstered sentiment across Asian markets.

U.S. Market Faces Uncertainty

“We see the selloff in U.S. equities as having further to go,” Deutsche Bank wrote in a note to clients. “With trade policy uncertainty likely to continue weighing on sentiment, at least until April 2, we expect positioning to continue to unwind.”

Goldman Sachs recently raised its price targets for Chinese stocks, citing AI adoption as a key driver of earnings growth and forecasting potential capital inflows of $200 billion.

The MSCI China Index , which tracks large and mid-cap stocks across China A shares, has been a key beneficiary of this rally.

Goldman Sachs adjusted its 12-month target for the CSI 300 index to 4,700 from 4,600 and raised its MSCI China target to 85 from 75.

Michael Gayed, publisher of The Lead-Lag Report, is confident China’s market will outperform U.S. markets over the next four years—and he doesn’t believe Trump is a major factor.

Instead, he attributes his bullish outlook to China’s low starting valuations and what he sees as a significant lack of foreign investment in the region.

As the global economic landscape shifts, investors are weighing whether China’s resurgence marks a short-term rebound or a fundamental realignment in market leadership.