China’s AI capex jumps 105% YoY, but Jefferies says US cloud giants face greater risks

Chinese technology companies sharply increased capital expenditure in the second quarter of 2026 as demand for artificial-intelligence inference grew and access to advanced chips improved. Despite the jump, Jefferies believes the sustainability of AI spending is a bigger concern for US cloud companies.

Combined capital expenditure by Alibaba, Tencent and Baidu surged 105% YoY and 95% sequentially to 126 billion yuan, or approximately $19 billion, during the quarter.

However, Jefferies said, “China’s spending remains considerably less intensive when measured against the companies’ overall revenue. It is also more volatile because chip purchases tend to occur when supplies become available.”


Why Jefferies sees greater risk in US

Jefferies considers capital expenditure relative to cloud revenue a more useful measure because much of the additional investment is being directed towards AI infrastructure.

On this measure, China appears more stretched in the latest quarter. Chinese cloud companies’ capex reached 176% of their cloud revenue, compared with 130% for their US peers.

However, Jefferies believes China’s quarterly figure was distorted by irregular chip purchases and Tencent’s heavy AI spending for internal use. Tencent has reduced its emphasis on selling public-cloud services, meaning its infrastructure investment does not necessarily translate directly into cloud revenue.

Over the past four quarters, Chinese companies’ capex was equivalent to 111% of cloud revenue, compared with 119% for US cloud providers.

Jefferies said any ratio above 100% warrants attention because it indicates that companies are investing more in infrastructure than they are generating in cloud revenue.

The brokerage is more concerned about the US because American AI models are largely closed-source. Such models are generally accessed through paid cloud services, giving US hyperscalers a clearer route to monetising their infrastructure spending.

Despite this advantage, US cloud capital expenditure still exceeded cloud revenue by 30% in the second quarter, and the gap has continued to widen.

Why did China’s capex jump?

Alibaba’s capital expenditure increased 75% from the previous year, while spending by Tencent and Baidu climbed 176% and 55%, respectively.

On a sequential basis, Alibaba’s capex jumped 152%, and Tencent’s increased 65%. Baidu’s spending was broadly unchanged.

Jefferies attributed the increase mainly to strong demand for AI inference—the process of using trained AI models to answer questions or generate content and an opportunity to purchase Nvidia’s H200 chips.

China may have bought about 200,000 H200 chips, equivalent to approximately 25,000 HGX H200 servers, during the quarter, the brokerage firm estimated. The purchases could have cost between $8 billion and $9 billion.

Assuming ByteDance accounted for 30% of these purchases, Alibaba, Tencent and Baidu may have spent around $5-6 billion on H200 chips. That would account for 55-65% of the sequential increase in their capital expenditure.

The remaining $3-4 billion was likely spent on domestically produced AI chips, with Jefferies identifying Huawei as the biggest potential beneficiary.

Why is China’s capex intensity still lower?

Capex intensity measures capital expenditure as a percentage of revenue. Although Chinese cloud companies more than doubled spending during the quarter, their combined capex-to-sales ratio stood at 25%, compared with 33% for their US peers.

The gap is wider when measured over a longer period. During the past four quarters, Chinese cloud companies spent around 16% of their revenue on capital expenditure, compared with approximately 27% for Amazon, Microsoft and Google.

Capital expenditure by the Chinese companies grew 30% over these four quarters. Spending by their US counterparts increased 76%.

The latest Chinese spending surge also came from a relatively low base. China’s previous peak capex-to-sales ratio was 14.5% in the fourth quarter of 2024. Even after the latest jump, the ratio has increased by about 10 percentage points from that level.

For US cloud companies, the capex-to-sales ratio has more than doubled between the fourth quarter of 2024 and the second quarter of 2026, representing an increase of around 17 percentage points.

Jefferies expects Chinese spending to continue rising as inference demand increases and local technology companies buy more domestic chips. However, it does not expect triple-digit growth every quarter or China to close the capex-intensity gap with the US soon.

What should investors watch?

A single quarter of elevated expenditure does not necessarily indicate overspending, particularly in China, where purchases of restricted or scarce chips can produce sharp swings.

The more important indicator is whether capex continues to grow faster than cloud revenue over several quarters. Investors will also need to monitor utilisation of new AI infrastructure, cloud-revenue growth and whether demand for paid AI services can generate sufficient returns on the additional investment.

For China, the spending surge could benefit Nvidia in the near term and Huawei as local companies increase purchases of domestic chips. For US hyperscalers, the key question is whether their closed-source AI ecosystems can convert rapidly rising infrastructure investment into proportionate cloud revenue.

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