The Collapse of “Lao Deng” Stocks’ Valuation: The Death of a Generation’s Asset Valuation Framework
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The Collapse of “Lao Deng” Stocks’ Valuation: The Death of a Generation’s Asset Valuation Framework
Old Deng’s stocks suffered a massive collapse.
Navigating Web3 tides with focused insightsBy Xiao Bing
On September 19, 2014, Alibaba listed on the New York Stock Exchange, closing its first trading day at $93.89. That day, Alibaba’s market capitalization stood at $231 billion—surpassing the combined market value of Oracle and Intel.
On June 25, 2026, Alibaba closed at $95.07.
Twelve full years separate those two figures.
Meanwhile, Meituan closed at HK$65.45, falling below its IPO offering price of HK$69 set in June 2018.
Pinduoduo hovered near $79—back to levels last seen in June 2020.
Tencent’s P/E ratio contracted to 12x, nearly halved from its 10-year historical average of 25.7x.
As for younger Chinese internet companies: Bilibili plunged from a peak of $156 to $18—a 89% drawdown; Kuaishou dropped from HK$417—the high reached on its first trading day after its Hong Kong IPO—to HK$44, erasing nearly 90% of its market value; iQiyi, Zhihu, Douyu, and Huya each suffered drawdowns ranging from 85% to 98%.
An entire generation of Chinese internet assets has undergone collective valuation reset. What framework is the market using to price these companies—or has the framework itself died?
Establishing—and Unmooring—the Anchor
Looking back, the valuation logic underpinning China’s internet sector followed an unusually clear “anchor-setting–anchor-unmooring” trajectory.
From 2014 to 2017, global capital markets assessed Chinese internet firms through the lens of “U.S. peer discounting.”
Alibaba was “China’s Amazon,” Tencent was “China’s Facebook plus China’s Visa,” and Baidu was “China’s Google.”
This methodology was elegant and powerful: identify U.S. peer companies’ valuation multiples, then apply a growth premium and governance discount reflecting China-specific conditions to arrive at a fair price. Under this framework, Chinese internet firms routinely traded at P/E ratios between 20x and 40x.
Foreign capital flooded in; Chinese ADRs became mandatory holdings—a first anchor.
In 2018, the U.S.-China trade war erupted. For the first time, global capital was forced to confront a question it had long deliberately avoided: If U.S.-China relations shifted from cooperation to competition, would the legal structures of companies operating in China but listed in the U.S. remain reliable? The Variable Interest Entity (VIE) structure had never received explicit legal endorsement under Chinese law—but during bull markets, no one cared. The trade war exposed this latent vulnerability in broad daylight. The valuation anchor loosened—but hadn’t yet been unmoored.
In October 2020, Ant Group’s IPO was abruptly halted. International capital markets transformed “Chinese regulatory risk” from a vague discount factor into an explicit, core pricing variable. The 2021 anti-monopoly crackdown pushed this logic to its extreme: Alibaba was fined RMB 18.2 billion; Didi was subjected to regulatory scrutiny the day after its U.S. listing; the after-school tutoring sector vanished overnight. Chinese ADRs shifted from “growth premium” to “regulatory discount.”
In 2022, delisting fears among Chinese ADRs peaked.
The SEC placed Alibaba, Baidu, JD.com, and over 100 other Chinese ADRs on its “pre-delisting list.” Though the U.S. and China ultimately reached a compromise on audit working papers, the damage was done. Global index funds systematically reduced their Chinese ADR weightings; some institutional investors liquidated positions outright due to compliance requirements. Structural capital outflows turned valuation compression from sentiment-driven into funding-driven.
In early 2025, DeepSeek’s emergence briefly ignited hope. Deutsche Bank dubbed it China’s “Sputnik Moment,” predicting the country’s valuation discount would vanish.
Alibaba and Tencent’s stock prices rebounded over 60% in the first two months of 2025. Yet this AI-driven re-rating lasted less than six months before fizzling out. By 2026, the U.S. Department of Defense added Alibaba and Tencent to its list of “Chinese military-connected enterprises”; Anthropic publicly accused Chinese firms of launching large-scale model distillation attacks against its Claude models; Nasdaq introduced new listing rules tightening liquidity thresholds for Chinese ADRs. Every attempt to rebuild a valuation anchor was swiftly shattered by fresh geopolitical shocks.
At this point, the “U.S. peer discounting” valuation methodology has completely failed. Markets no longer price these companies based on their business models, growth rates, or profitability.
But it’s not that simple.
“Old Man Stocks” Across the Pacific
Shift focus from Chinese ADRs traded on the NYSE to U.S. tech giants trading in the same building—and you’ll find: the market has abandoned far more than just Chinese internet stocks.
In 2026, Microsoft was the worst-performing stock among the “Magnificent Seven,” down over 20% year-to-date—falling from a late-2025 high near $490 to around $360. Its P/E ratio contracted from a five-year median of 34x to 22x—the lowest in three years.
The company’s fundamentals remain rock-solid: Azure cloud revenue grew 39% year-on-year; AI-related annualized revenue surpassed $37 billion; quarterly net profit hit a record $31.8 billion.
The market ignores these numbers—and fixates instead on another: $190 billion, Microsoft’s full-year 2026 capital expenditure budget, almost entirely directed toward AI infrastructure. Its quarterly capex now exceeds its entire annual capex five years ago. Free cash flow fell from $20.3 billion to $15.8 billion—widening the fissure between profit and cash.
Microsoft’s plight is not isolated.
All seven Magnificent Seven stocks underperformed the S&P 500 in 2026. The four hyperscale cloud providers—Amazon, Microsoft, Alphabet, and Meta—collectively spent nearly $700 billion on capex this year. The GPU clusters and data centers purchased with this money won’t generate revenue until their 3–5-year depreciation cycles conclude—investment front-loaded, returns deferred, free cash flow crushed in between.
A deeper issue looms: These companies are deploying massive capital to chase a technological paradigm that may well disrupt their own business models.
Microsoft’s core revenue stems from Office subscriptions and Windows licensing—a user-count-based SaaS model nearing saturation. In the AI era, commercial logic shifts to consumption-based pricing: pay per token used.
CEO Satya Nadella has openly acknowledged that every Microsoft product currently priced per user will transition to a hybrid “user + usage” model. GitHub Copilot fully switched to consumption-based pricing in June 2026—but market concern lies precisely here: legacy models boast extremely high margins; whether new models can sustain comparable profitability remains unknown.
Viewed from afar, this landscape mirrors Alibaba’s and Tencent’s predicaments structurally.
Alibaba’s core e-commerce business operates as a highly profitable advertising engine—just as stable as Microsoft’s Office—but commands ever-lower valuation multiples. Tencent’s WeChat ecosystem remains China’s sturdiest internet moat, yet gaming revenue growth slows while ad revenue faces erosion from short-video platforms—a situation eerily parallel to Microsoft’s search-ad revenue squeeze by Alphabet.
Both sides’ legacy giants are pouring capital into AI to survive: Alibaba committed $55 billion to AI infrastructure; Microsoft $190 billion. Yet markets across both shores cast doubt on whether “this money will ever be recouped.”
Chinese internet practitioners habitually blame domestic regulation and geopolitics for their stocks’ decline; U.S. tech insiders attribute Microsoft’s slump to “spending too aggressively.” Peel away surface narratives, and the underlying reality is identical: AI-native firms are redefining the entire technology industry’s value chain—and the previous generation of platform giants, regardless of nationality, are shifting from “companies defining the future” to “companies needing to prove they won’t be rendered obsolete by it.”
In Chinese internet vernacular, such stocks have earned a precise nickname: “Old Man Stocks.”
Nikkei: A Precedent for the Death of Valuation Systems
This phenomenon—where the entire “valuation coordinate system” gets replaced—is not unprecedented in global capital markets. The closest historical analogue is Japan post-1989.
On December 29, 1989, the Nikkei 225 Index closed at 38,915—the all-time high.
That year, eight of the world’s ten largest companies by market cap were Japanese. NTT’s share price soared to ¥3 million just two months after its 1987 IPO—its market cap exceeding the combined value of the eight largest U.S. firms at the time. Tokyo land prices were 350 times Manhattan’s. Sony acquired Columbia Pictures; Mitsubishi purchased Rockefeller Center.
Japanese investors of that era—much like Chinese internet practitioners in 2020—genuinely believed their system would dominate the global economy’s future.
The bubble’s trigger was the Bank of Japan raising interest rates. But the magnitude of the decline was merely the crisis’s shallowest feature; its duration and nature proved truly suffocating.
The Nikkei lost half its value in the first half of 1990, plunging to 14,000 by 1992. Had it stopped there, it would’ve been a typical bubble burst and valuation correction. It didn’t stop. It drifted downward for another decade, hitting 7,600 in 2003—a staggering 80% drawdown from its peak.
This decade-long decline wasn’t driven by collapsing corporate competitiveness.
Toyota remained the world’s best automaker; Sony continued producing groundbreaking consumer electronics. The root cause ran deeper: global capital ceased believing in the “Japan premium.”
Prior to 1989, Japan’s valuation framework rested on three pillars: “world’s most efficient manufacturing civilization + perpetually growing domestic demand + unique corporate governance advantages.”
After the bubble burst, each pillar crumbled: manufacturing leadership eroded amid competition from Korea and China; domestic demand stagnated amid deflation and aging demographics; corporate governance proved a shelter for inefficiency. The old valuation framework died—but no new one emerged.
In 1989, 32 of the world’s top 50 companies by market cap were Japanese. By 2018, only Toyota remained.
How long did this vacuum last? Roughly 25 years. The Nikkei didn’t begin its true trend reversal until 2012—and only reclaimed its 38,915 peak in February 2024. Crucially, this re-rating wasn’t catalyzed by Japan’s comprehensive economic revival.
A single individual, using a new language, redefined “why buy Japanese assets.”
In summer 2019, Warren Buffett began acquiring shares in Japan’s five major sogo shosha (trading companies). His investment logic diverged radically from decades of market thinking about Japan. Buffett ignored GDP growth, demographic trends, and technological innovation. His rationale was starkly simple: these firms traded at low valuations, offered high dividends, generated stable cash flows—and were implementing genuine corporate governance reforms. He hedged currency risk by financing purchases with yen-denominated bonds—and lent his personal credibility as implicit backing for Japanese assets. By 2025, Berkshire Hathaway held nearly 10% stakes in each of the five firms.
Buffett provided Japanese assets with a new valuation language: the old narrative was “Japan will dominate the global economy”; the new one is “low valuation + high dividend + corporate governance reform.”
Where Is China Internet’s “New Language”?
Laying Japan’s timeline beside China’s internet experience reveals undeniable structural parallels.
The old valuation framework is dead. The collapse of “U.S. peer discounting” mirrors the implosion of the “Japan will rule the world” narrative. Neither country’s corporate fundamentals deteriorated catastrophically; rather, the macro assumptions underpinning valuation premiums were invalidated. China’s macro assumption was “deepening integration between China’s market and global capital markets”; Japan’s was “the Japanese model represents capitalism’s most efficient form”—both proven false.
No new valuation framework has yet emerged. Markets currently price Chinese internet assets by applying discounts atop the ruins of the old framework—just as Japan did in 1995. Markets know the old price was wrong—but lack consensus on what the new price should be.
Japan’s experience suggests this vacuum may last far longer than most anticipate. From bubble burst to market-wide acceptance of a new valuation framework, Japan required ~25 years. China’s internet valuation system began systemic disintegration in 2020—just six years ago. If Japan’s timeline holds any relevance, we’re likely still in the early phase of re-rating.
Yet critical differences exist between China and Japan. Japan’s asset re-rating unfolded amid prolonged deflation and population contraction—corporate profitability genuinely deteriorated post-bubble. China’s internet leaders remain profitable: Tencent’s annual net profit exceeds RMB 220 billion; Alibaba’s core e-commerce cash flow remains robust. This implies that—if a new valuation language emerges—re-rating could accelerate beyond Japan’s pace.
What might constitute China internet’s “new valuation language”?
AI is the most visible candidate—but also the most contradictory.
For two decades, global internet companies shared a remarkably homogeneous business model: capture user attention, aggregate traffic onto platforms, then monetize via ads, e-commerce commissions, or in-game purchases.
AI is now undermining this business’s very foundation.
When AI agents can compare prices, place orders, and plan trips for users, consumers no longer need to open Taobao and scroll page-by-page. When AI recommends—or even generates—content tailored to preferences, users spend less time “scrolling” on any single platform. Attention shifts from human eyes to AI agent interfaces; traffic gateways change; platforms’ strategic role as intermediaries becomes redundant. This threatens virtually every core internet sector: e-commerce, search, social, content, and gaming.
If any Chinese internet firm pioneers the transition from “attention platform” to “AI infrastructure and service provider,” it could earn an entirely new valuation language.
The cruelty lies in this: proactive disruption means dismantling your most profitable legacy business.
Taobao’s ad revenue relies on merchant bidding for rankings—if AI agents bypass rankings to directly select products for users, this revenue shrinks. Each step of transformation erodes existing profits, while the new model’s profitability remains unproven.
If you chase AI, you must endure massive capex crushing free cash flow—Microsoft’s P/E falling from 34x to 22x is precisely this story’s endpoint; if you don’t chase AI, the market brands you obsolete.
Microsoft bets $190 billion on rewriting its entire revenue architecture: win, and it becomes the new era’s infrastructure; lose, and it commits history’s largest capital misallocation.
Shareholder returns represent a second contender. Tencent and Alibaba are executing massive buybacks; Tencent’s dividend yield has risen to 1.25%. This mirrors Buffett’s logic for pricing Japan’s sogo shosha: if markets refuse to pay for growth, use real cash—buybacks and dividends—to establish a valuation floor. Yet current buyback scales remain modest relative to market-cap declines—not yet sufficient to serve as an independent pricing anchor.
China’s internet assets today sit in a position strikingly similar to Japan’s circa 1995: the old framework is dead, the new framework unborn, and markets float in a vacuum awaiting the person—or event—that can redefine “why buy.”
Current levels likely mark only the midpoint of this protracted re-rating journey.
This article reflects TechFlow Research’s analytical perspective only and does not constitute investment advice. Stock analyses herein are based on publicly available information; investors should conduct independent assessments and assume all associated risks.
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