(Bloomberg) -- Alibaba Group Holding Ltd.’s announcement of a six-way split is just the latest reason for bulls of China’s tech sector to be more optimistic.

A raft of sales beats and signs of a more relaxed regulatory environment had already provided a more positive backdrop of late, which Tuesday’s news from the e-commerce giant is only likely to bolster. US-listed shares of Alibaba shares rose as much as 11%, with analysts expecting the overhaul to help crystallize value.

The nation’s three internet leaders — Baidu Inc., Alibaba and Tencent Holdings Ltd. — have all reported revenue ahead of analysts’ consensus for the final quarter of 2022, aided by a recovery in advertising. Alibaba co-founder Jack Ma’s return to China — after more than a year abroad having irked Beijing — was perceived by some as another indication of the regulatory setting shifting for the better.

Members of the Hang Seng Tech Index have risen 5.5% on average through Tuesday since their earnings reports, led by a 27% surge in Lenovo Group Ltd., data compiled by Bloomberg show.

This season took on greater significance as investors sought clarity on how tech firms are emerging from years of Covid restrictions and regulatory headwinds. The overall take is one of cautious optimism. While the sector is no longer growing at a dizzying pace, improving consumption and Beijing’s wind down of crackdowns build the case for a valuation re-rating.

“The earning announcements of big Chinese Internet names confirmed our view that earnings will continue to improve this year for the sector,” said Jian Shi Cortesi, a fund manager at Zurich-based GAM Investment Management, adding that the biggest surprise came from Tencent’s advertising recovery, which was stronger than expected. 

READ: Alibaba Jumps After SCMP Reports Jack Ma Returns to China

Shares of Tencent have risen 4.5% since announcing a beat in quarterly revenue last week on the back of strength in online advertising and a resumption of gaming approvals. Lenovo has steadily trended upward since net profit came in better than expected, with shares surging last week as JPMorgan Chase & Co. double-upgraded the stock to overweight.

Among the 19 Hang Seng Tech companies that have reported sales results, eight notched better-than-expected outcome while seven saw in-line revenue and four missed estimates, according to data compiled by Bloomberg.

JPMorgan analyst Alex Yao — known for his “uninvestable” call on the sector before turning more positive mid-2022 — expects Beijing’s pro-growth policies and the diminishing risk of a delisting of American Depositary Receipts to boost the sector’s valuation.

Notable outliers include Alibaba, whose shares have fallen about 10% since its Feb. 23 release, after the company shared cautious guidance. Meituan also slumped Monday despite a surge in sales as traders’ focus turned to its weaker margin outlook.

All in all, the Hang Seng Tech Index has gained more than 4% so far in March, on track to outperform the the benchmark Hang Seng Index, which has fallen about 1%.

“We think 2023 will be a year of valuation re-discovery as global investors revisit China Internet stocks that have seen distorted historical financial results in the past three years,” Yao at JPMorgan wrote in a note last week. While key pillars of tech revenue have reached mature stages, there’s still “ample opportunities” to generate long-term sustainable growth, he added. 

Tech Chart of the Day

Nvidia Corp. has surged 82% this year to add nearly $300 billion to its market value. The appreciation has pushed the chipmaker toward an elite group of companies that make up the top five most valuable US firms. As of Monday’s close, Nvidia was valued at $655 billion in market capitalization, not far off fifth-placed Berkshire Hathaway Inc.’s $662 billion.

Top Tech Stories

  • Alibaba Group Holding Ltd. plans to split its $220 billion empire into six main units that will individually raise funds and explore initial public offerings, the biggest overhaul of China’s e-commerce leader since its inception more than two decades ago.
  • Walt Disney Co. has begun the first of what is expected to be 7,000 job cuts, a key part of a $5.5 billion savings drive the company announced in February.
  • Alphabet Inc.’s Google asked a US judge to dismiss the government’s case against its dominance in the digital advertising market.
  • Lyft Inc. tapped David Risher to be its new chief executive officer, replacing co-founder Logan Green and setting the stage for a potential sale as the ride-hailing company struggles to compete with bigger rival Uber Technologies Inc.
  • The head of the US National Security Agency’s cybersecurity arm said popular video-sharing app TikTok is China’s “Trojan horse” and poses a long-term, strategic cybersecurity concern.
  • Japanese telecom KDDI Corp. has joined gaming blockchain network Oasys, aligning itself with companies such as Square Enix Holdings Co. and Sega Sammy Holdings Inc. that are exploring the so-called metaverse.
  • Twitter Inc.’s “For You” feed, the default view for users of the social network, will no longer recommend content from accounts that aren’t verified.

--With assistance from Subrat Patnaik.

(Updates stock move in second paragraph.)

©2023 Bloomberg L.P.