Kling AI valued at HK$140 billion, nearing parent company's total market cap—Is Kuaishou 'undervalued'?

With the completion of nearly USD 3 billion in funding for Kuaishou’s AI video foundation model 'Kling AI,' a debate is heating up in capital markets over whether Kuaishou as a whole is undervalued.

On the evening of July 2, Kuaishou Technology announced that its indirectly wholly owned subsidiary, Beijing Kling, completed an external capital increase of up to USD 3 billion at a pre-money valuation of USD 15 billion, implying a post-money valuation of USD 18 billion (approximately HK$141 billion). This round was jointly led by CPE Source Fund, Guofang Venture Capital, BlueFive, Tencent, United Nations National Development Fund, and CITIC Securities, with participation from 36 institutions including Alibaba and Baidu, setting a new global record for the largest single-round fundraising by a video foundation model company.

However, this figure has caught the market’s attention: as of the close on July 6, Kuaishou’s Hong Kong-listed shares had a total market capitalization of approximately HK$199 billion. This means the valuation of Kling AI alone accounts for more than 70% of its parent company’s market value. To put it more concretely: in Q1 2026, Kuaishou reported revenue of RMB 33.716 billion and net profit of RMB 2.903 billion; its full-year 2025 net profit reached RMB 18.617 billion. Yet Kling AI remains a division contributing less than 1% of Kuaishou’s total revenue.

This 'subsidiary larger than parent' valuation inversion has sparked market skepticism about whether Kuaishou’s core business is undervalued. As of the latest closing price, Kuaishou trades at a trailing price-to-earnings ratio of just 9.42x. Morgan Stanley noted in a research report that Kuaishou’s core business trades at a P/E ratio as low as 3x, making it highly attractive; China Merchants Securities International believes the Kling capital increase serves as a key catalyst for revaluing Kuaishou’s AI assets.

From a fundamentals perspective, Kuaishou has entered a stable profit cycle. In the first quarter of 2026, Kuaishou reported revenue of RMB 33.716 billion, up 3.4% year-over-year. Meanwhile, Keling AI’s growth trajectory has also been exceptionally steep: as of March 2026, its annual recurring revenue (ARR) approached USD 500 million, surging fourfold within a year; Q1 2026 revenue exceeded RMB 650 million, representing year-over-year growth of over 300%.

However, concerns about valuation bubbles in the AI sector cannot be ignored. Signs of froth in the AI industry are already emerging—Meta’s plan to sell excess computing capacity has shattered the market consensus that computing power is absolutely scarce. Keling AI’s post-money valuation in this funding round has been reduced by USD 2 billion from the initial target of USD 20 billion set in April this year. In fact, this adjustment does not reflect insufficient growth potential at Keling AI itself, but rather illustrates the private market’s return to rational pricing for AI assets.

On the capital structure front, following the completion of this transaction, Kuaishou’s ownership stake in Keling AI will be diluted from 100% to approximately 68.33%, with Keling AI remaining consolidated within the listed company’s financial statements. Proceeds from the financing will be used for business expansion, daily operations, and team development. Notably, the agreement stipulates that if Keling AI fails to complete an IPO by October 30, 2031, investors will have the right to request redemption of their shares at the original investment cost plus 8% annual simple interest.

Amid growing market attention on Keling AI’s fundraising news, Tencent divested approximately 273 million Class B shares of Kuaishou via an off-exchange block trade on July 6, raising around HKD 12.6 billion and reducing its stake to 9.37%, thereby ceasing to be a major shareholder of Kuaishou. Tencent stated it remains confident in Kuaishou’s long-term growth prospects.

With its AI subsidiary’s valuation approaching that of the parent company on one side, and a core shareholder executing a massive divestment on the other, Kuaishou now stands at a crossroads in its valuation narrative.

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