Chinese stocks are so incredibly unloved these days after many years of being dragged down by the bears. Undoubtedly, the geopolitical risks associated with the names are still very much present. However, you may be enticed by the rise of technological innovations (think generative AI). But, you don’t want to pay a pretty penny for exposure. In that case, the Chinese tech scene may be worth a second look while it’s still down and out.
Undoubtedly, China is home to some serious large-cap AI innovators, with many going for multiples that seem too good to be true. Even if China’s tech titans were to unlock next-level value via generative AI, it’s uncertain that international investors would risk their wealth in the Chinese markets. Indeed, geopolitical tensions alone may be enough reason to scratch any Chinese stock off your radar.
If you’re okay with the risk profile and want to expand your investment horizons, consider three undervalued buys. Chinese stocks are worthy of attention as the AI boom unfolds in markets beyond the U.S.
Baidu (BIDU)
Baidu (NASDAQ:BIDU) may be considered by many as the Alphabet (NASDAQ:GOOG, GOOGL) or Google of China. With an impressive AI business and reported discussions with Apple (NASDAQ:AAPL) regarding its potential future devices sold in China, it’s not a mystery as to why the stock may be perceived as an overlooked AI gem.
Indeed, BIDU American Depository Receipts (ADRs) crept higher following the potential Apple chatter. If the deal actually comes to be, though, Baidu could have more upside as investors realize the magnitude of such a deal. China is undoubtedly a huge market. And, an Apple-Baidu partnership could have the potential to profoundly benefit both firms as AI and smart devices merge.
For now, BIDU looks incredibly cheap at 14.2 times trailing price-to-earnings (P/E) given its AI-fueled growth prospects. Expect this to continue to be discounted as investors increasingly steer away from Chinese stocks.
Alibaba (BABA)
Alibaba (NASDAQ:BABA) is another Chinese tech laggard with impressive AI innovations. Yet, it may be able to reverse its multi-year funk. Undoubtedly, dip-buyers have continued to be punished by a stock that sinks lower over time.
As the company continues AI innovation, its open-source large language models rival the likes of ChatGPT. So, perhaps value-seeking AI investors may embrace the painful ride of BABA stock. Additionally, Alibaba is standing out as a fast-moving cloud player that may benefit from the same AI-driven dynamics as America’s top cloud companies.
All considered, Alibaba looks like a deep value play, but only one that’s fit for those willing to risk getting hurt from catching the falling knife. At 13.6 times trailing P/E, the stock appears cheap.
PDD Holdings (PDD)
Finally, PDD Holdings (NASDAQ:PDD) is perhaps best known as Pinduoduo, the Chinese tech giant behind the low-cost shopping app Temu. Unlike Baidu and Alibaba, PDD stock has found a way to gain higher in recent years, due to robust sales growth.
Indeed, its overseas e-commerce gem, Temu, has been a major growth driver for the firm. For now, it seems like international customers can’t get enough of shopping “like a billionaire” with Temu’s rock-bottom prices. Whether Temu can extend its growth remains to be seen.
Regardless, PDD bets big on AI lately as it seeks to even the playing field in large language models. With decent momentum, (shares are up 141% in the past two years), PDD definitely stands out as the most intriguing of the batch. The 27.1 times trailing P/E multiple isn’t all too frothy, either.
On the date of publication, Joey Frenette held shares of Alphabet (Class C) and Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
