China’s Internet shares have tumbled since late last year, and some now look very undervalued, with potential upside of 20% to more than 30%, according to one U.S. bank.

Investors have lately turned cautious on darling growth stocks and on emerging markets, so stocks that fall into both groups have been doubly punished. The Internet sector in China has fallen more than 20% from its fourth-quarter peak, versus a 10% drop over that…