AI Boom in China: Are Chinese Mid-Cap Stocks Multibaggers in the Making? This Fund Manager Thinks So

The AI Gold Rush Hits China’s Mid-Cap Arena

The artificial intelligence (AI) revolution is not just a Silicon Valley story. In China, a parallel boom is taking shape—only this time, it's the country's mid-cap companies that are quietly emerging as major beneficiaries. As global investors hunt for the next wave of exponential growth, one fund manager believes China’s AI-focused mid-cap stocks could become multibaggers in the next 3–5 years.

“China is investing aggressively in AI infrastructure, chip design, and industry-specific applications. While large-caps like Baidu and Tencent are already priced for leadership, the real value is hiding in the mid-cap segment,” said Leon Wang, Chief Investment Officer at Orient Apex Capital, a Hong Kong-based asset management firm.

From Policy to Profit: Why China Is Betting Big on AI

China’s government has earmarked AI as a strategic sector in its 14th Five-Year Plan, aiming to become a global leader by 2030. The plan encourages domestic innovation in core technologies such as semiconductors, neural networks, and edge computing—areas where several mid-sized firms are carving out niches.

The AI push has also filtered down to provincial levels, with local governments offering tax incentives and subsidies to AI startups and public companies involved in smart manufacturing, robotics, and AI healthcare.

According to McKinsey & Company, China’s AI market is expected to exceed $150 billion by 2030, growing at a CAGR of 26%. “This provides fertile ground for smaller, agile firms that can scale faster than bureaucratic giants,” said Wang.

Mid-Cap Movers: Names That Are Gaining Momentum

Among the notable performers in recent months is Kingsoft Cloud Holdings, which is pivoting toward AI-powered cloud solutions. The stock has climbed over 60% in the past 6 months. Similarly, iFLYTEK, known for its voice recognition and translation technology, has gained significant traction amid rising demand for AI-enabled language models.

Another rising star is Cambricon Technologies, a semiconductor firm designing AI chips for edge computing. While still in its growth phase, Cambricon’s revenue surged by 38% YoY in Q1 2025, a sign that investor optimism is being matched by fundamental growth.

"These companies are still under-followed compared to their U.S. counterparts," noted Amy Liu, equity strategist at Shenzhen-based NewFront Research. "But they are delivering real solutions—from retail automation to precision medicine."

Risk Factors: Geopolitics, Valuations, and Regulatory Hurdles

Despite the optimism, risks remain. U.S.-China tech tensions have led to export controls on advanced chips, which could delay AI development for some firms. There's also concern about overvaluation, with P/E ratios for many AI mid-caps exceeding 50x, making them vulnerable to corrections.

Additionally, regulatory uncertainty is an overhang. Beijing’s past clampdowns on tech giants raise questions about how smaller firms will be governed once they scale. “Investors must be prepared for sudden policy pivots,” Liu added.

Wang, however, sees these as manageable risks. “We view regulation as part of the maturation process. The current cycle is about laying guardrails, not stifling innovation. That’s good for long-term stability.”

Fund Strategy: Active Stock Picking for Exponential Upside

Orient Apex Capital recently launched its NextGen China AI Fund, targeting small- and mid-cap firms with market caps between $1 billion and $10 billion. The fund is sector-agnostic but prioritizes AI-adjacent themes such as automation, cybersecurity, and smart logistics.

“Our strategy is to find companies with defensible moats, clear IP advantages, and scalable business models,” Wang explained. “We’re not just chasing hype; we’re backing companies with recurring revenues, expanding margins, and visionary leadership.”

The fund has already invested in over a dozen mid-cap names and aims to increase its AI portfolio weighting from 12% to 25% by the end of 2025.

Global Investors Take Note

Global asset managers are also turning their eyes toward China’s mid-cap AI surge. Fidelity International and BlackRock have reportedly increased their exposure to mainland mid-caps through their emerging market ETFs. Meanwhile, Japanese and Korean institutional funds are exploring co-investment opportunities in AI R&D joint ventures.

“The opportunity is asymmetric,” said David Yoon, an analyst at Nomura. “If these mid-caps break through with successful commercial applications, we’re not talking about 20–30% upside—we’re talking 3x to 5x returns over the next cycle.”

Investor Outlook: Is This the Beginning of a Bull Run?

While the sector's rally has already begun, many believe it’s still early days. Institutional participation in these stocks remains relatively low, and most Chinese AI mid-caps are not yet part of global indices like the MSCI EM Index—giving savvy investors a chance to enter before broader fund flows arrive.