China just had its best earnings season in years: Kobeissi

China’s listed companies are delivering a sharp recovery in profitability, with the artificial intelligence investment cycle emerging as a key driver of the rebound. The improvement marks a significant turnaround from the earnings weakness seen through much of 2025, even as Chinese equity benchmarks have continued to struggle.

According to The Kobeissi Letter, profits at Chinese companies listed on the mainland surged 25.7% year-on-year in Q2 2026, marking the strongest growth since Q2 2021. It was also the second consecutive quarter of positive earnings growth after profits declined by double digits in Q4 2025.

The improvement is visible across the broader A-share universe. As of August 23, 1,716 companies listed in Shanghai, Shenzhen and Beijing had reported their first-half 2026 results, according to Wind data cited by China Securities Journal.

Together, these companies recorded 11.21 trillion yuan ($1.56 trillion) in revenue, up 11.51% from a year earlier, while combined net profit rose 26.62% to 1.04 trillion yuan. The numbers suggest that the recovery in corporate profitability is increasingly showing up in actual financial results.

AI emerges as a major earnings driver

The earnings rebound has been particularly strong among companies benefiting from the AI investment cycle. Profit growth on Shenzhen’s growth-focused ChiNext market reached 42%, while earnings on Shanghai’s technology-focused STAR Market surged 370%, significantly outpacing the broader market.

Companies exposed to AI infrastructure and the semiconductor supply chain have reported some of the strongest gains. Optical module maker Zhongji Innolight reported first-half revenue of 41.78 billion yuan, up 182.49% year on year, while net profit jumped 241.70% to 13.65 billion yuan.

Its overseas revenue increased 209.9% to about 39.62 billion yuan as demand for high-speed optical modules remained strong amid rising AI infrastructure investment by major cloud-service providers.

Memory maker Longsys reported first-half revenue of 24.09 billion yuan, an increase of 136.26%, while net profit jumped more than 715 times to 10.58 billion yuan. The company cited rising demand for enterprise storage from AI servers and data centres as one of the factors behind the improvement.

Batteries add another growth engine

The recovery is also spreading into other advanced-manufacturing segments, particularly the lithium-battery supply chain.

CATL, the world's largest electric-vehicle battery maker, reported first-half revenue of 276.92 billion yuan, up 54.8%, while net profit rose 41.98% to 43.28 billion yuan.

The battery industry has benefited from demand for electric vehicles and energy storage, providing another source of earnings growth alongside AI and semiconductors.

Cyclical sectors show signs of recovery

The improvement is not confined to technology and new-energy companies. Parts of China’s traditional industrial economy are also beginning to recover as product prices and margins improve.

At the broader industrial level, profits at large Chinese electronics companies rose 96.9% in the first half, while non-ferrous metal and chemical industry profits increased 99.4% and 67.8%, respectively.

This points to two distinct sources of momentum in China’s earnings: structural growth in AI, semiconductors and advanced manufacturing, alongside a cyclical recovery in selected traditional industries.

Earnings boom contrasts with stock-market weakness

Despite the earnings improvement, stock-market performance has moved in the opposite direction. The CSI 300 has fallen 9% so far this quarter, while the technology-heavy STAR 50 has declined 29%.

The divergence highlights a striking disconnect between corporate fundamentals and equity-market performance. For now, China’s earnings recovery appears increasingly driven by AI, semiconductors, batteries and selected cyclical industries, raising the question of whether stronger profits can eventually translate into a sustained recovery in Chinese stocks.