China Equity Strategy 1Q26 Earnings Dissector: AI driving China's capex boom; autos, battery materials and lithium leading anti-involution

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China Equity Strategy 1Q26 Earnings Dissector: AI driving China's capex boom; autos, battery materials and lithium leading anti-involution

Global Markets Strategy

18 May 2026

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China Equity Strategy

1Q26 Earnings Dissector: AI driving China's capex

boom; autos, battery materials and lithium leading

anti-involution

The internet majors’ 1Q26 results released in the past week give us more Equity Macro Research

confidence in MSCI China’s valuation rerating, and we upgrade Consumer AC Erin Zhang, CFA

Discretionary to Neutral from UW, funded by downgrading Consumer Staples to

(86-21) 6106 6328

UW from Neutral on further EPS downgrades (Figure 1). We also reiterate our erin.zhang@jpmorgan.com

positive stance on China’s AI ecosystem theme, which not only recorded strong SAC Registration Number: S1730521090002

EPS y-y (MXCN IT now +132% EPS y-y in 1Q26), but also drove China’s capex- J.P. Morgan Securities (China) Company

inventory dual upcycle in 1Q. We swap Minimax to Baidu for the latter’s Limited

exposure to Tencent’s capex ramp-up (Figure 2). We also revisit the progress of Tim Huang AC

anti-involution, and note that autos, battery materials, and lithium are among the (852) 2800-4323

leaders. The auto sector exemplifies the anti-involution initiative’s broader goal, tim.huang@jpmorgan.com

namely moving from destructive price wars to R&D and value-oriented J.P. Morgan Securities (Asia Pacific) Limited/