(Bloomberg) -- Analysts’ relentless downgrades of profit estimates last year helped fuel a plunge in Chinese technology stocks. That pressure is finally easing. 

Brokerages have increased their earnings per share predictions for Hang Seng Tech Index companies by 8.2% from a September low, according to data compiled by Bloomberg. Estimates for the gauge had been slashed by 23% from the 2021 peak to the trough, the data shows. In the U.S., by contrast, forecasts for the Nasdaq 100 Index rose steadily last year but have been largely unchanged the past few months. 

Smaller companies in industries that are strongly supported by Beijing, such as software firm Kingsoft Corp Ltd. and chip giant Semiconductor Manufacturing International Corp., have seen the biggest increases. Estimates for technology giants such as Baidu Inc. and Alibaba Group Holding Ltd. have been lowered further, however. 

The growing optimism for some pockets of Chinese technology is a positive signal for the beaten-down benchmark. The tech index has been fluctuating in volatile trading in recent weeks, after having halved from the February high. A key market concern has been that Beijing’s year-long regulatory crackdown will hurt the sector’s profitability in the long run. 

“The outlook for software and semiconductors in China is far brighter than that of the large internet and e-commerce companies, so that’s clearly being reflected in rising earnings estimates,” said Matthew Kanterman, Bloomberg Intelligence analyst. 

Software is expected to be one of the fastest-growing industries in China as Beijing highlights the urgency for companies to digitize their businesses. The semiconductor strength is riding on a global chip shortage and China’s desire to cultivate more home-grown companies to reduce its reliance on the U.S. 

Still, the sluggish sentiment over the big technology firms will remain a drag for the index. Consensus estimates for Alibaba and Baidu have been reduced by another 13% and 29% since mid-September, respectively. Video-streaming platform Bilibili Inc. has seen its average estimate slashed by more than a third since September. 

The reality check will come as most companies will report their fourth-quarter earnings by the end of March and are expected to share guidance for the new year. Alibaba is seen reporting a third consecutive quarterly earnings drop, the first time it will have done so since 2015. 

“It’s very hard for analysts to make accurate forecasts about the bigger tech firms’ earnings trend given lots of uncertainties,” said Hong Hao, head of research at Bocom International Holdings Co. “We think the worst is behind us in terms of regulatory crackdown, but it may take time for that trend to be reflected in the earnings.”

Tech Chart of the Day

Peloton Interactive Inc., one of the stock-market stars during the pandemic, has lost about 86% of its value since a peak in January last year, reversing nearly all of its advance since the start of the Covid-19 outbreak. Its shares plunged 24% Thursday after CNBC reported that the home-fitness equipment maker will temporarily halt production of its connected fitness products. Peloton disputed the report and vowed to slash expenses and jobs to get itself back on track as consumers emerge from lockdowns. 

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