China's digital entertainment stocks have performed strongly YTD, driven not only by improved fundamentals but also by investment themes such as AI, according to JPMorgan's research report.

However, the broker believed that the stock price outlook for NTES-S (09999.HK)  -3.000 (-1.468%)    Short selling $191.14M; Ratio 18.969%   (NTES.US)      and BILIBILI-W (09626.HK)  -5.300 (-2.953%)    Short selling $189.58M; Ratio 16.248%   (BILI.US)      will be less attractive in the next 6 months, and downgraded the above 2 stocks from Overweight to Neutral, while raising its target prices.

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Regarding NTES-S, JPMorgan believed that there is limited upside in earnings as marketing expenses will increase over the next 1-2 years due to the promotion of new and existing games, with a lack of blockbuster game launches in 2H25 to drive game revenue growth. Therefore, the broker lifted its target price for NTES-S' H-shares/ US stock from $210/ US$135 to $220/ US$140.

Regarding BILIBILI-W, although JPMorgan remained optimistic about its advertising revenue growth rate exceeding industry levels, 'Sanmou' will face high base pressure in 2H25, causing total revenue growth to slow from 24%/ 20% in 1Q25/ 2Q25 to 5% in 2H25, with BABA-W (09988.HK)  +1.200 (+1.037%)    Short selling $662.20M; Ratio 7.482%   's 'Three Kingdoms: Tactics' continuing to have strong competitiveness in China's strategy game market. Therefore, the broker elevated its target prices for BILIBILI-W's H-shares/ US stock from $165/ US$21 to $185/ US$24.

The broker suggested investors to focus on stocks with reasonable valuations and double-digit CAGR in earnings, with KUAISHOU-W (01024.HK)  -2.400 (-3.117%)    Short selling $587.92M; Ratio 14.457%   being its top pick in the digital entertainment industry. BOSS ZHIPIN-W (02076.HK)  -0.550 (-0.748%)    Short selling $221.53K; Ratio 1.672%   and BEKE-W (02423.HK)  -0.200 (-0.419%)    Short selling $41.15M; Ratio 21.237%   were favored in the vertical internet sector.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2025-08-01 16:25.) (Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)

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