Huafu Securities: ByteDance boosts its AI efforts and focuses on investment opportunities in the computing power hardware industry chain.

Huafu Securities released a research report stating that ByteDance held the Volcano Engine FORCE Power Conference on December 18, officially launching the Bean Bag 3D Generation Model. The daily average token usage of the Bean Bag large model has exceeded 40 trillion in recent days, growing more than 33 times since its release 7 months ago. The company is optimistic about this trend, and ByteDance predicts that the daily token consumption of the Bean Bag will exceed 100 trillion by 2027. The securities firm believes that with the rapid growth in demand for the Bean Bag large model and ByteDance's increased investment in AI, upstream hardware companies in the computing power industry chain will benefit significantly, and suggests focusing on the optical module, copper connection, switch, server, and server parts industry chain. Key points from Huafu Securities: This week, the Nasdaq Composite Index fell by 1.78%, while the Philadelphia Semiconductor Index fell by 3.59%. On Wednesday, the Federal Reserve turned hawkish, causing a sharp decline in US stocks, with the Nasdaq dropping over 3% and Tesla falling by over 8%. The chip index fell nearly 4%, with Broadcom dropping nearly 7% and Nvidia rising nearly 5% before turning down. Additionally, Micron Technology, which issued disappointing guidance for the quarter, fell by over 17%. On Friday, PCE data eased inflation concerns, leading to a rebound in US stocks, with the Nasdaq rising by 1.03% and Nvidia rising by over 3%. In the semiconductor sector, Micron Technology saw a weekly decline of 12.08%, ARM Holdings fell by 13.01%, and Marvell Technology fell by 7.34%. Micron: Short-term consumer demand weak, optimistic outlook for long-term HBM The company achieved a revenue of $8.71 billion in FY25Q1, an 84.1% year-on-year increase and a 12.4% increase from the previous quarter, meeting market expectations. The adjusted non-GAAP diluted EPS was $1.79, higher than the expected $1.77. By segment, the Compute and Networking business unit achieved revenue of $4.4 billion, a 46% increase from the previous quarter and a record high for the quarter, driven by cloud server DRAM demand and HBM revenue, which has doubled for two consecutive quarters. The Mobile business unit achieved revenue of $1.5 billion, a 19% decrease from the previous quarter, mainly due to mobile customers focusing on inventory reduction and the company adjusting supply to meet data center demands. The Embedded business unit achieved revenue of $1.1 billion, a 10% decrease from the previous quarter, mainly due to reductions in inventory by automotive, industrial, and consumer customers. The Storage business unit achieved revenue of $1.7 billion, a 3% increase from the previous quarter, driven by record-high data center SSD revenue. Although the company returned to profit year-on-year, the revenue guidance for the next quarter was significantly weak, leading to a more than 17% drop in the company's stock price after-hours. The company expects FY25Q2 revenue to be between $7.7 billion and $8.1 billion, significantly lower than the expected $8.99 billion; the adjusted EPS is expected to be between $1.33 and $1.53, significantly lower than the expected $1.91; the adjusted gross margin is expected to be between 37.5% and 39.5%. In the short term, consumer-oriented market performance is weak. However, the market is more focused on Micron's strategic position in the HBM market, with its HBM products being integrated into Nvidia's H200 chip and Blackwell system. The company expects the total addressable market for HBM to quadruple from $16 billion in 2024 to over $100 billion by 2030. This week's viewpoint: ByteDance boosts AI, focuses on opportunities in the computing power hardware industry chain ByteDance held the Volcano Engine FORCE Power Conference on December 18, officially launching the Visual Reasoning Large Model, a new Image Generation Model, and the Bean Bag 3D Generation Model. Key highlights include the price of the Bean Bag Visual Reasoning Large Model dropping to 0.003 yuan per thousand tokens, 85% lower than industry prices; the new Image Generation Model accurately generates Chinese text for the first time in poster generation; the Bean Bag 3D Generation Model used in conjunction with the Volcano Engine virtual twin platform veOmniverse efficiently completes intelligent training, data synthesis, and digital asset production, becoming a set of physical world simulation simulators that support AIGC creation. In addition, several products in the Bean Bag large model have been updated significantly, with the versatile model Pro fully aligning with GPT-4o and being priced at 1/8th of the latter. The music model has upgraded from generating simple structures of 60 seconds to complete works of 3 minutes. The daily average token usage of the Bean Bag large model has already exceeded 40 trillion, growing over 33 times in the past 7 months since its release. The company is more optimistic about this trend, and Wu Di, the Head of Intelligent Algorithms at Volcano Engine, has stated that ByteDance predicts that the daily token consumption of the Bean Bag will exceed 100 trillion by 2027. Looking at ByteDance's computing power supply, according to data bao, the company's investment in AI in 2024 has reached 80 billion yuan, and capital expenditures are expected to reach 160 billion yuan in 2025. The securities firm believes that with the rapid growth in demand for the Bean Bag large model and ByteDance's increased investment in AI, upstream hardware companies in the computing power industry chain will benefit significantly and recommends focusing on the optical module, copper connection, switch, server, and server parts industry chain. Risk warning Unexpectedly slow progress in AI applications, intensified industry competition, and global trade friction risks.