While the last few years AI investments are correlated with companies’ capex, I think the next stage is to focus on opex.
As customers of LLMs and agents, how many tokens are consumed and what is the cost of that? That will show up in operating expenses.
This will be supportive evidence of strong revenue growth for companies like Anthropic etc., just like looking at Meta’s capex comments for Nvidia’s revenue growth.
Every five years, China will have a new Politburo Standing Committee.
There are 7 members now, which are considered the most politically powerful people in China.
Not all members are new, some can stay for 2-3 term.
But the fight for becoming a new standing committee member can be quite intense.
There can be ripple effects across other areas in China.
Stock market can be quite sensitive to unknowns and turbulence.
To avoid uncertainties, it’s wise to stay away from it.
To compensate for staying on the sideline for about one year, the previous year can be quite a good year.
That seems to the case for the last 2 terms – 2017 and 2022 were the year of new committee selection. The “fight” could start in 2016 and 2021. Thus the “good” years were 2015 and 2020.
The next term is 2027. The “fight” could start in 2026 and 2025 was the good year. That seems to be the case so far.
PE multiple is not only a reflection of earnings quality, earnings growth/cagr, etc.
It’s also an encouragement or discouragement for value creation.
If $1 of profit is worth 10x in HK and 50x in A-share, companies could be more encouraged to create more value for A-share shareholders.
The same rationale also applies to upstream or downstream players – PE multiple can influence whether revenue or profit should sit more or less in supplier or customer etc.
Japan before Meiji vs Qing Dynasty have many similarities:
1/ both are agrarian based economy that is not industrialized as western peers at the time
2/ both faced challenges and threats from the west. Qing has the Opium Wars from the 1840s; Japan encountered Perry’s Black Ships in 1853–1854.
3/ both had a structured military class – Qing with 八旗 and Japan with samurai. Both had become partly hereditary status groups living on state stipends. Many were no longer effective soldiers.
The Meiji Restoration 明治维新 and 百日维新 Wuxu Reform / The Hundred Days Reform are similar and usually compared together.
The results are vastly different though.
Why?
Shogunate is politically easy to target. Reformers can support the Emperor Meji. Meji and Tokugawa are separate.
However, Guangxu, the Qing Emperor had “invisible enemies” inside – Cixi or other Manchu noble.
The political situation difference had another profound impact – the support of armies.
Meji had key army support from Satsuma 萨摩, Chōshū 长洲 which are clearly anti-shogunate.
Guangxu didn’t have army. Guangxu had Kang Youwei who had ideas but no real power.
Military forces at that time were still loyal to the Qing court on the surface. Whether it’s 袁世凯 or 湘军/曾国藩 or 八旗, no one is clearly anti-Cixi. People could be dissatisfied but Cixi was still the powerful core of Qing court.
Yuan was likely the most possible choice for Guangxu back then, but Yuan chose not the take the risk / help a coup etc.
Yuan Shikai 袁世凯 did not have a clean, rightful banner to be openly anti-Cixi.
What gives you comfort in keeping US equity?
Trump put is not something everyone can accept.
Fed put is less certain if war keeps inflation high.
What else?
Buffett put – Berkshire’s massive cash position to support any big dip.
SpaceX/OpenAI IPO put – world’s wealthiest people/investors won’t let market close for their pay day.
In a previous post, I said unpredictability is what Pop Mart investors must shoulder, but is there any number that can make investors slightly more comfortable?
Let’s try Labubu adjusted P/E and we need Labubu adjusted earnings.
Labubu (The Monsters IP from Pop Mart) revenue was over 14 billion rmb in 2025.
The other “good” IPs were about 3 billion rmb revenue.
We can assume there is 10 billion “extra” revenue that Labubu is earnings.
We can also assume Pop Mart’s marginal operating profit margin is 50%. Then the “extra” operating profit is ~5 billion rmb.
Subtract that from 2025 operating income will give you about 12bn rmb in Labubu adjusted operating profit.
With 25% tax rate, Labubu adjusted earnings is about 9bn rmb.
At 150 HKD per share, Pop Mart is at ~20x Labubu adjusted P/E.
Pop Mart stock plunged after earnings – down 23% on Wednesday and down 10% on Thursday.
Pop Mart’s forecast of 20% or so rev growth in 2026 is lower than what is expected and is a sharp decline after 185% growth in revenue in 2025.
Labubu is still one of the hottest fashion toy IP worldwide with no competitors I think.
However, investors can’t reliably forecast future rev and thus cash flows of Pop Mart as nobody knows whether Labubu can sustain its mojo / for how long and how far.
Unpredictability is usually a negative thing, but people disregarded it as a risk when Labubu was in rapid growth mode. The “upside” unpredictability blinds investors – they liked it actually.
Now if you really want to be an investor in Pop Mart, you need to be comfortable with this inherent unpredictability.
One way to think about this is that Pop Mart is ultimately a very good channel like Tencent. Whatever it incubates and sells, its stores will sell them well. Pop Mart stores are the product of Pop Mart, alongside the IPs like Labubu.
However, to say Pop Mart stores is like WeChat is too much a compliment for Pop Mart so far. Network effect that is so strong and unique that WeChat really doesn’t have a competitor.
I believe excellent CEOs need a set of unique skillsets – they need to be able to unite people, rally the morale, be bold and innovative in strategy.
Good CFOs are very good at numbers, very analytical when presented a well-defined question. They are also responsible for financing and executing M&As which can be strategical.
I think excellent CFOs can bring CEO-like value when they proactively pursue M&A deals or actively manage acquired companies. However, this is not a base case.
I could be wrong, but more often than not, CFOs don’t really need to be innovative or think outside the box to be okay – they are fine to be pragmatic and consistent, and sometimes expected to be so.
When CFOs become CEOs, there might be an attendance to deliver near-term numbers rather than focus on real value creation.
It could also go wrong if they rely too much M&As – bad deals will cost a fortune and even mediocre deals carry opportunity costs.
Alibaba used to have Daniel Zhang as CFO and he became CEO in 2015. When he stepped down in Sep 2023, the annualized return during his tenure is at best bond-like.
That’s why I don’t feel good about Mixue Group – it announced that its CFO Zhang Yuan will become CEO, effective immediately. Mixue founders will stay as co-chairman though.
Let’s see.
There are two core values provided by “e-commerce” platforms, transaction and discovery.
If you know what you want, search in Taobao, and put an order, Alibaba provides the “transaction” value.
If you just want to order McDonald’s food delivery, Meituan also provides the “transaction” value.
What shopping mall provides and what Taobao used to be famous for is that consumers are just wandering around / 逛 – this is how the “discovery” value can be provided.
“Discovery” is deserved to earn higher, and almost as a cut to final sales – businesses believe they win this incremental order because of you. In “transaction” mode, businesses believe they have already had the order; thus transaction providers can only earn the fulfillment fee.
In the transaction mode, the lowest transaction cost provider will naturally win more busines.
In the discovery mode, the provider that can generate more “new sales” can win more business.
So Tencent mini-program / mini-shop is good for luxury brands as the they just need a place to list. Consumers almost already know these brands. The lower than transaction cost the better.
Douyin, Xiaohongshu are better in discovery mode as users spend a lot of time in their app “wondering”. The apps are more likely than others to create incremental demand – users don’t know they want it until they see it.
Previously, transaction mode and discovery mode are served in the same place like Taobao.
This is also true for Meituan in food delivery or in-store dining. Chinese consumers scroll Meituan app for look for food delivery or dining ideas. Even if they are already in the restaurant or know what to order, they also go to Meituan to make related transaction.
Meituan also provides pre-defined sets for many in-store dining – this is tricky. Is this discovery mode? Consumers don’t know what to eat even they are already in the restaurant.
But I think it’s still more transaction mode. Think about the fixed tasting menus provided at a Michelin restaurant. Meituan doesn’t help create incremental demand here if I browse and purchase the $199 set via the app – the value is transaction or like credit cards.
All I want to say is that if Meituan will be like Taobao, competition will be from two fronts – one is by providing lower transaction cost, another is by stealing the discovery cake.
拭目以待
Alibaba recently outlined a 5-year target to $100bn AI+Cloud revenue, however many investors are either not convinced or skeptical of future monetization.
Why Alibaba has $100bn target in the first place?
Besides the delayed AI boom in China with potential breakthrough in domestic AI chip production, what are the drivers?
1) Amazon CEO Andy Jassy outlined $600bn goal in 10 years recently
$100bn would be about 700bn rmb and matches the AWS “number”.
2) Within Alibaba, there could be potential internal politics consideration
E-commerce is still the most profitable core business; Jiang Fan leads the e-commerce efforts, spending billions in quick commerce etc.
Eddie Wu leads the AI+Cloud and is CEO of Alibaba. This is growing fast but still not as profitable.
These two people might be fighting for resources and territory within Alibaba.
AI+Cloud needs to be bold.
700bn rmb rev with 15% EBITA margin will be ~100bn rmb EBITA.
This could be matching Alibaba’s China e-commerce adj. EBITA in 2026, which dropped from ~200bn though, due to massive subsidy.
For Jiang Fan, quick commerce is a way to paint growth picture for overall china e-commerce business.
Otherwise, Eddie Wu might get more of Alibaba’s incremental spending, which then will almost ensure Wu’s rise and Jiang’s fall.
Jiang was also smart in not picking the fight with PDD, which is probably harder to win. The fight with Meituan is not easy, but if you have to pick one to fight with between PDD and Meituan, Meituan is the choice.
Tencent also has already made the choice – it sold Meituan stake and kept PDD stake.
Fighting with PDD is more defending vs. fighting with Meituan is winning new businesses. KPIs will look more exciting in the new business.