Ten consecutive days of gains! On the penultimate trading day of 2025, China’s A-share market defied any seasonal holiday lull, showcasing unique momentum in another assault on the 4,000-point threshold. This relentless drive encapsulates a year of clear upward trajectory for Chinese equities, setting the stage for a pivotal 2026. As investors look ahead, a critical question emerges: which sector is poised to be the biggest winner in the coming year?
Executive Summary: Key Market Takeaways
- The AI investment narrative is evolving from infrastructure build-out to application monetization and hardware integration, creating multiple potential winning vectors for 2026.
- AI application companies, particularly in verticals like industrial, advertising, and finance, are entering a potential “profit realization year” with high growth visibility.
- A “Hundred Glasses War” in AI wearables and the dawn of the AI phone era in 2026 could see smart hardware emerge as a major winner, driven by tech giants’ strategic pivots.
- Underpinning this growth, AI compute demand remains insatiable, with global cloud capital expenditure setting new records, directly benefiting Chinese communication equipment leaders positioned in the global supply chain.
- China’s communication equipment sector, epitomized by the top-performing Communication ETF (515880), offers concentrated exposure to the compute infrastructure theme and remains a strong contender to be among 2026’s biggest winners.
The Race for 2026’s Throne: AI’s Evolving Battleground
The final trading sessions of 2025 offered a clear signal. While the broader market pushed higher, AI-related sectors remained firmly in the spotlight. The Communication ETF (515880), tracking AI compute infrastructure, closed the year with a staggering 128.37% gain, securing its position as the top-performing ETF in the market. This sets a high bar and focuses investor minds on where the next phase of exponential growth will originate. The convergence of policy support, declining compute costs, and maturing technology is creating fertile ground for new market leaders to emerge. Identifying the primary beneficiary of this trillion-RMB investment wave is the central task for allocators in 2026.
The Application Layer: 2026 as the “Profit Realization Year”
A powerful narrative gaining traction among sell-side analysts and institutional investors is that 2026 will mark the year AI application stocks transition from speculative growth stories to profitable enterprises. The investment theme is decisively rotating from “building the foundation” to “monetizing the capability.”
From Infrastructure to Implementation
The logic is compelling. With hardware infrastructure maturing and computational costs falling, the market’s gaze is shifting downstream. The question “who takes the baton after hardware?” is leading capital towards software and services. Early signals are visible. A recent rally in gaming and media stocks was triggered by Meta’s multi-billion dollar acquisition of Manus, an AI application developer, highlighting the immense value ascribed to compelling AI use cases. This mirrors a path blazed in U.S. markets, where companies like AppLovin have seen their stocks soar alongside earnings, powered by AI-driven advertising efficiency.
Vertical Integration and Deterministic Growth
The most promising near-term opportunities may lie in vertical AI applications. Companies embedding AI into specific industry workflows—such as industrial automation, financial and tax compliance, and intelligent office solutions—are demonstrating more predictable revenue growth. These firms possess deep domain expertise, and AI acts as a force multiplier on their existing operations. As noted by analysts at格隆汇 (Gelonghui), these “efficiency multiplier” businesses, often small to mid-cap with high growth potential, could see earnings explode at the first sign of a definitive inflection point, positioning them as strong candidates to be 2026’s biggest winner in their respective niches.
The Hardware Paradigm Shift: AI Glasses and Phones as Contenders for 2026’s Biggest Winners
Contrasting the software-centric view, a compelling counter-narrative posits that 2026 will be the critical breakout year for AI hardware. The proliferation of open-source, high-efficiency models like DeepSeek is accelerating the integration of AI into physical devices, with tech giants rapidly pivoting their strategies.
The “Hundred Glasses War” Heats Up
AI glasses have emerged as 2025’s most-watched hardware arena, evolving into a fierce battleground for the next human-computer interface. The entire upstream and downstream industry chain has seen financing exceed RMB 100 billion. Global players like Google and Samsung have rebooted projects, while Apple’s long-rumored Apple Glass is anticipated in 2026. Domestically, products from Alibaba’s夸克 (Quark) and理想汽车 (Li Auto)’s Livis have entered the fray. IDC data confirms the momentum, showing global smart glasses shipments grew 64.2% year-over-year in the first half of 2025.
The Dawn of the AI Phone Era
Simultaneously, the AI phone is poised for its breakthrough moment. Chinese manufacturers are leading the charge. In December, ByteDance collaborated with中兴通讯 (ZTE)’s努比亚 (Nubia) to launch the “Doubao AI Phone,” the nubia M153. On the technology front,智谱AI (Zhipu AI)’s December 9th open-sourcing of AutoGLM, hailed as the world’s first AI agent with stable “Phone Use” capability for complex cross-application tasks, marks a significant leap. IDC forecasts that next-generation AI phone shipments in China will reach 147 million units in 2026, capturing 53% of the total market. While 2026 may be the “AI Phone Year One,” its full realization is an ecosystem endeavor, dependent on the synergistic evolution of AI operating systems, browsers, app intelligence, and agent interoperability.
The Unsinkable Demand: Why Compute Infrastructure Remains a Prime Candidate for 2026’s Biggest Winner
Whether applications or hardware take the lead, one sector stands to benefit invariably: AI compute infrastructure. The underlying economics can be framed by Say’s Law—supply creates its own demand. Just as the discovery of oil spurred the automotive and logistics industries, the proliferation of low-cost, high-performance compute is not leading to surplus but is instead generating unprecedented demand for new AI applications that were previously unimaginable.
From Cyclical Doubt to Structural Conviction
This year tested this thesis. The AI compute sector faced headwinds from concerns over over-investment and geopolitical “reciprocal tariffs,” experiencing severe volatility. Even giants like NVIDIA saw sharp corrections. However, the sector rebounded powerfully as cloud hyperscalers consistently reaffirmed and expanded their capital expenditure (CapEx) plans. The dramatic shift in stance by prominent investors like ARK Invest’s Catherine Wood (木头姐) is telling. After previously voicing skepticism, ARK’s ETFs made multiple significant purchases of NVIDIA stock throughout 2025, citing attractive valuations, technological moats, and the structural growth of the AI industry as justification.
The Hyperscaler CapEx Arms Race: A Demand Floor
The numbers are staggering and provide the fundamental bedrock for the compute thesis. Major cloud providers have entered a sustained CapEx arms race, with guidance consistently revised upwards:
- Microsoft: Q1 FY2026 (Jul-Sep 2025) CapEx hit $34.9 billion, exceeding guidance. The company plans for ~$100 billion in FY2026 CapEx, focused on building “AI factories.”
- Alphabet (Google): Revised its full-year 2025 CapEx guidance twice, now to $91-93 billion, with ~60% directed at servers. The company explicitly stated 2026 CapEx will “increase meaningfully.”
- Amazon: Guides to roughly $125 billion in 2025 CapEx, with expectations for continued expansion in 2026.
Domestically,阿里巴巴集团 (Alibaba Group) announced a three-year plan to invest over RMB 380 billion in cloud and AI infrastructure, while腾讯控股 (Tencent Holdings) also signaled increased CapEx for 2025, potentially reaching the RMB 100 billion level. This global spending surge creates a powerful, long-term demand tailwind for the underlying hardware providers.
China’s Competitive Edge: Communication Equipment at the Heart of the Compute Boom
This brings us to a sector that has already been a monumental winner and is structurally positioned to continue: China’s communication equipment industry. The success of the Communication ETF (515880) is not accidental; it reflects China’s entrenched and leading position in critical segments of the global AI compute supply chain.
Precision Exposure to the Compute Value Chain
The ETF tracks an index focused purely on AI compute infrastructure, excluding telecom operators. Its portfolio is heavily concentrated in “optical modules + servers + copper connections + optical fiber,” which together account for over 81% of its weight. Notably, optical modules alone comprise 53%. It offers targeted exposure to companies like中际旭创 (Zhongji Xuchuang),新易盛 (Eoptolink), and天孚通信 (TFC Optical Communication)—often referred to collectively as “Yi Zhong Tian”—which represent 46% of the fund. These are the companies “selling the shovels” during the global AI gold rush.
Global Leadership in Critical Components
Chinese manufacturers are no longer followers but leaders. Firms like “Yi Zhong Tian” are among the few globally capable of mass-producing 800G and emerging 1.6T high-speed optical modules, supplied directly to NVIDIA, Microsoft, Meta, and Google. They are pivotal in advancing next-generation technologies like LPO (Linear Drive Pluggable Optics) and CPO (Co-Packaged Optics). Similarly, in AI server assembly, Chinese players leverage a vast domestic market and full-stack capabilities to secure a vital ecosystem position. This global competitiveness, coupled with unrelenting hyperscale demand, makes this sector a formidable contender to be among 2026’s biggest winners.
Strategic Outlook for the Year Ahead
The landscape for 2026 is shaping up to be one of concurrent, multi-layered growth within the AI megatrend. The quest for a single biggest winner may yield multiple answers across different investment horizons and risk appetites. AI application stocks offer high-beta growth potential as monetization accelerates. AI hardware makers present a transformational narrative as devices become intelligent. Meanwhile, AI compute and communication equipment providers offer a more foundational, demand-driven play on the entire ecosystem’s expansion, characterized by high visibility and Chinese global leadership.
For investors, a barbell strategy may be prudent: maintaining core exposure to the proven, cash-flowing leaders in compute infrastructure while selectively allocating to high-conviction, emerging leaders in applications and hardware. Continued monitoring of hyperscaler CapEx guidance, monthly smartphone shipment data from IDC or中国信息通信研究院 (CAICT), and quarterly earnings from vertical AI software firms will provide crucial validation for these theses. As always, investment decisions must be grounded in independent research. The analysis presented here, sourced from contributors to格隆汇 (Gelonghui), is for informational purposes and does not constitute investment advice.
Disclaimer: The views expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. This content is for informational purposes only and should not be construed as professional investment advice.
Author: Ma Yidong (马轶东)