2026: The Make-or-Break Year for AI Profitability – UBS Expert Warns Chinese Tech Firms Must Deliver Returns After DeepSeek Rally
The DeepSeek breakthrough in early 2025 sent shockwaves through global markets, sparking a sharp rebound in Chinese technology equities as investors rediscovered the region’s potential in artificial intelligence. This surge drew renewed capital inflows, reversing earlier caution tied to regulatory pressures and economic headwinds.
However, according to Eva Lee, who leads Greater China equities research within UBS Global Wealth Management’s Chief Investment Office, the coming year represents a critical inflection point. She emphasizes that 2026 will separate sustainable leaders from the pack, requiring AI-driven enterprises—particularly in China—to demonstrate concrete revenue generation and positive returns on massive prior expenditures.
Lee points out that while excitement around innovative models like DeepSeek has fueled optimism and lifted valuations, the sector now faces scrutiny over monetization. Investors want evidence that heavy spending on infrastructure, model training, and deployment translates into scalable business models, whether through cloud services, enterprise applications, consumer tools, or API ecosystems.
Broader UBS analysis supports a constructive yet cautious stance on the theme. Globally, AI-related capital expenditures are projected to approach significant levels by 2026, with revenues from direct and indirect sources potentially matching that scale. In China specifically, expectations center on cost-efficient advancements driving adoption, though operating margins may trail Western peers due to competitive dynamics.
Lee remains positive on select Greater China tech opportunities, noting that leading players in cloud computing, super-apps, and AI applications could see robust earnings expansion—potentially in the high double digits—into next year. She views current valuations as reasonable compared to global counterparts, suggesting room for further gains if execution delivers.
Still, challenges loom: market volatility could intensify from factors like geopolitical strains, uneven economic recovery, or delays in widespread enterprise AI uptake. The shift from hype to proven cash flows will likely create dispersion, rewarding companies with strong distribution, regulatory alignment, and clear paths to profitability.
For investors eyeing the AI megatrend in emerging markets, Greater China remains a high-conviction area, but 2026 demands a focus on fundamentals over speculation. As Lee underscores, this pivotal period will determine whether the region’s AI momentum evolves into enduring value creation.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.