Debon Securities' annual strategy for the computer industry in 2025: Innovate around independent and controllable new quality production forces.

Debon Securities released a research report stating that the conditions for a new round of innovation cycle are maturing, and the computer new round of innovation cycle may be opened, with 25 years expected to usher in a breakthrough in new quality productivity acceleration. 2024 is regarded as the Agent Year, and the increase in volume of terminals and applications can be expected successively. Data elements at the top level files are gradually being rolled out, reassigning domestic data resources, and from operation to application innovation are expected to be relaxed. Currently, China is strengthening fiscal support for the autonomous and controllable information technology and innovation field, stimulating domestic demand. At the same time, domestic computing power supply and demand are thriving, and Internet clients will bring significant increments. It is recommended to pay attention to information technology, artificial intelligence (AI), and data elements fields. Debon Securities' main points are as follows: A new round of innovation cycle is gathering momentum; regaining confidence in R&D investment is expected to accelerate product iterations. Reviewing the two major innovation cycles of mobile internet and cloud computing, they both demonstrated features of increased R&D investment and active new product supply under loose liquidity and technological breakthroughs, eventually leading to a technology bull market. From 2012 to 2015 (mobile internet): the highest points of the GEM Index and the Computer (SHENWAN) Index were 3982.25 and 10340.48 respectively, with cumulative increases of 463.18% and 607.75% compared to the early 2012; from 2019 to 2021 (cloud computing): the highest points of the GEM Index and the Computer (SHENWAN) Index were 3563.13 and 6724.39 respectively, with cumulative increases of 403.90% and 360.25% compared to the early 2012. The conditions for a new round of innovation cycle are maturing On the one hand, data is gradually becoming a key element driving industrial transformation and economic development, and new quality productivity represented by AI, quantum information, industrial internet, etc., is replacing traditional productivity to promote high-quality economic development. On the other hand, since 2024, countries led by the United States have entered an interest rate cut cycle, with a cumulative decline of 75bps in the federal funds rate from September to November, reducing the cost of funds flowing into the technology innovation field and enhancing the overall market risk appetite and liquidity level. From the perspective of R&D investment, the R&D expense ratio of the computer industry has entered negative territory since 2023Q2 and has been declining quarter by quarter, with the largest decline reaching -1.02pct in 2024Q2. The decline in the third quarter of 2024 has shown a turning point, indicating that confidence is emerging from the trough. China actively cultivates and develops new quality productivity, seizes the high ground of the new round of global technological revolution and industrial transformation, and product iterations and technological innovation are expected to accelerate. Domestic basic software and hardware: fiscal support backs Huawei, the spring of domestic software and hardware. Fiscal support: Under external disturbances, China is strengthening fiscal support for the autonomous and controllable information technology and innovation fields, stimulating domestic demand. At the same time, the three-phase national survey has activated the information technology supply market. According to the focus of information technology innovation, large orders for information technology innovation in industries such as party and government, and medical care continue to land. Huawei leads: Huawei is a powerful player in the wave of information technology innovation, seeking breakthroughs in chips, storage, databases, operating systems, etc., through capabilities such as technological innovation, full-stack autonomy, ecosystem construction, and high-quality services. It continuously constructs the information technology innovation industry chain through methods such as "ecological alliances, open source communities," driving the domestic process. Domestic players: CASIC and CETC have entered the market first, with rich experience in government project operation. By holding shares, investing strategically, they have first established a relatively complete information technology innovation service industry chain, and indirectly hold or control the leading domestic database companies; The "Eight Policies" boost M&A restructuring, and domestic industrial software companies have sufficient cash reserves, industrial software is expected to further activate the M&A market, forming a fully domestic layout through product and channel mergers. Domestic computing power: Supply and demand are thriving, Internet clients will bring major increments. IDC data shows that in the first half of 2024, China's accelerated server market size reached 5 billion US dollars (an increase of 63% year-on-year), China's accelerated chip shipment exceeded 900,000 units, with domestically produced chips nearing 200,000 units (approximately 20%), and it is expected that by 2025 the Chinese accelerated server market size will reach close to 15 billion US dollars (a 30% increase year-on-year), the market size will reach 25.3 billion US dollars by 2028, and the CAGR from 2025 to 2028 will reach 19%. On the supply side, the performance of domestic GPU/CPU is close to the international mainstream level. In 2024Q3, Hygon Information Technology's inventory was 3.896 billion (an increase of 467.71% year-on-year), and Cambricon Technology's inventory was 1.015 billion (an increase of 310.85% year-on-year), showing significant improvement year-on-year and quarter-on-quarter, indicating a clear improvement in supply; On the demand side, applications for acceleration are landing, as of September, the daily average Tokens usage of Bytebean's large models exceeded 1.3 trillion, and Alibaba, Tencent, Baidu's total capital expenditures in the second quarter of 2024. amounted to 22.941 billion (a significant year-on-year increase of nearly 70%), indicating a continuous investment in AI. It is expected that in 2025, large Chinese Internet companies such as ByteDance and Alibaba will actively promote domestic computing power procurement, leading to large orders. AI terminals/applications: The year of Agent, increasing volume of terminals and applications can be expected successively. Agent network's prototype has emerged, with different terminals merely serving as the carrier of the Agent Network. In the future, terminals are expected to increase in volume in order of interaction frequency (smartphones, PCs, cars, glasses, Siasun Robot & Automation). The upgraded versions of Claude 3.5 Sonnet, Honor MagicOS 9.0, and Zhifu AutoGLM can simulate human operation of PC and mobile terminals, significantly reducing the threshold for terminal operation and improving the interactive experience. In the future, they are expected to be deployed in mass on terminals. IDC predicts that in 2024, the global shipments of AI smartphones will reach 234 million units (a 358.8% year-on-year increase, with a penetration rate of 19%), and in 2025, the shipments of AI smartphones are expected to reach 405 million units (a 73.1% year-on-year increase, with a penetration rate of 32.7%); In 2024, China's AIPC shipments amounted to 21.51 million units (a 548% year-on-year increase, with a penetration rate of 54.7%), and in 2025, China's AIPC shipments are expected to reach 31.79 million units.(year-on-year growth of 48%, penetration rate of 74.6%)After the terminal volume increases and user acceptance of generative AI improves, vertical explosive Agent/applications have the potential for explosive growth. In terms of cloud services, generative AI has become the main driver of growth for overseas CSP giants such as Google, Microsoft, Amazon, Meta, etc. in the third quarter of 2024. For example, Microsoft's Q3 Azure cloud service revenue increased by 33% year-on-year, with AI contributing 12%, higher than the previous quarter's 11%; in terms of office applications, following Salesforce's launch of the automatic agent Agentforce in September, Microsoft plans to launch 10 new agents targeting B-side in November to create a complete set of AI tools; in terms of vertical Agent, the threshold for software development has greatly lowered, and explosive Agent/applications for various industries are on the way. Data elements: The redistribution of domestic data resources from operations to application innovation is expected to be relaxed. Top-level data element files are being released one after another, and the entry of data assets confirms the data value held by the data resource owner, clarifying data ownership, making the initial "explicitization" of enterprise data value, and through supporting data transactions, achieving the external empowerment of data elements to multiply value through a market-oriented approach, and completing the market-based distribution of data element resources. Public data has a large-scale and high-value, attracting extensive attention from policies. By authorizing operations, public data is expected to help break through the bottleneck of development and utilization. In order to promote data application and value mining in multiple scenarios, China has proposed the "Data Element X" action to promote the multiplier effect of data elements and empower the digital development of various industries. Risk warning: Risks such as upstream supply falling short of expectations, intensified competition in the midstream, orders and demand falling short of expectations in the downstream, unexpected domestic macroeconomic factors, geopolitical conflicts and other international macroeconomic factors, technology development and commercial deployment progress falling short of expectations, etc.