Guosen: AI infrastructure and applications strengthen each other, with an expected 17% increase in IC sales by 2025.

Guosen released a research report stating that AI is still the main theme of technological development, and AI infrastructure and applications are mutually reinforcing, becoming the core growth driver of the semiconductor industry. On the application side, OpenAI held a 12-day product launch event and launched the o3 model; Byte hosted the Volcanic Engine Power Conference and officially launched the visual understanding model, with a price of 0.003 yuan per thousand tokens, an 85% lower than the industry average price, equivalent to one dollar can process 284 720P images; Lenovo held the Tianxi Ecological Partner Conference with the theme "AI ecology, the future is here", continuing to recommend AI-end targets Bestechnic (Shanghai) Co., Ltd. (688608.SH), Espressif Systems (688018.SH), etc. On the infrastructure side, the CEO of Broadcom stated that the company's customers are developing three to five-year AI infrastructure investment plans, and it is expected that the investment boom in artificial intelligence by major technology companies will continue until the end of 2030. In the face of continuous breakthroughs in AI applications and uncertain patterns, major manufacturers are intensifying the AI arms race, continuing to recommend AI infrastructure-related targets such as Montage Technology (688008.SH), JoulWatt Technology (688141.SH), etc. Additionally, TechInsights predicts that global IC sales will grow by 17% in 2025, and IC revenue will increase by 26%, continuing to recommend companies benefiting from capacity utilization due to sales growth, such as Semiconductor Manufacturing International Corporation (688981.SH) and HUA HONG SEMI (01347). Guosen's main points are as follows: In December, the SW Semiconductor Index fell by 0.25%, with a valuation at the 70.17% percentile since 2019. By December 2024, the SW Semiconductor Index fell by 0.25%, underperforming the electronic industry by 0.73%pct and the Shanghai and Shenzhen 300 Index by 0.71%pct; overseas Philadelphia Semiconductor Index rose by 1.08%, and Taiwan Semiconductor Index rose by 7.89%. In terms of sub-industries, digital chip design (+8.20%) and integrated circuit packaging and testing (+0.98%) saw the highest change rates; semiconductor materials (-11.98%) and semiconductor equipment (-11.45%) recorded the lowest change rates. As of December 31, 2024, the SW Semiconductor Index PE (TTM) was 88.57x, at the 70.17% percentile since 2019. Among the SW semiconductor sub-industries, the PE (TTM) of semiconductor equipment and integrated circuit packaging and testing are relatively low, at 54x and 61x, respectively; analog chip design and digital chip design have valuations over 100x; semiconductor equipment is at a relatively low valuation level since 2019, at the 17.06% percentile. In the third quarter of 2024, the semiconductor heavy stock holding ratio was 8.6%, overallocated by 4.9%pct. In the third quarter of 2024, the market value of electronic companies in the top holdings of funds was 399.5 billion yuan, with a shareholding ratio of 13.96%; the market value of semiconductor companies was 246.4 billion yuan, with a shareholding ratio of 8.6%, an increase of 0.2%pct quarter-on-quarter. Compared to the semiconductor market value ratio of 3.7%, it was overallocated by 4.9%. Among the top twenty heavy holdings in the third quarter of 2024, new additions include Kingsemi Co., Ltd., Fortior Technology (Shenzhen) Co., and National Silicon Industry Group, replacing Maxscend Microelectronics, Jiangsu Yoke Technology, and Rockchip Electronics. Global semiconductor sales in November increased by 20.7% year-on-year, and the contract prices of DRAM and NAND Flash both declined. According to SIA data, global semiconductor sales in November 2024 were $57.82 billion, a year-on-year increase of 20.7% and a month-on-month increase of 1.6%, marking a 13th consecutive month of year-on-year growth and a new historical high; of which China's semiconductor sales were $16.18 billion, a year-on-year increase of 12.1% and a month-on-month decrease of 0.1%. In terms of storage, the contract prices of DRAM and NAND Flash both declined in November, while the spot prices of DRAM rose in December. In addition, TrendForce predicts that the contract price of DRAM in the first quarter of 2025 will decline by 0%-5%, with general DRAM expected to decline by 8%-13%; the contract price of NAND Flash is expected to decline by 10%-15%. Based on the November revenue data of Taiwan's semiconductor companies, IC design/manufacturing/testing increased year-on-year but decreased month-on-month; DRAM chip production decreased month-on-month. Investment strategy: AI infrastructure and applications are mutually reinforcing, with an expected 17% increase in IC sales in 2025. AI is still the main theme of technological development, with AI infrastructure and applications mutually reinforcing, becoming the core growth driver of the semiconductor industry. On the application side, OpenAI held a 12-day product launch event and launched the o3 model; Byte hosted the Volcanic Engine Power Conference and officially launched the visual understanding model, with a price of 0.003 yuan per thousand tokens, an 85% lower than the industry average price, equivalent to one dollar can process 284 720P images; Lenovo held the Tianxi Ecological Partner Conference with the theme "AI ecology, the future is here", continuing to recommend AI-end targets such as Bestechnic (Shanghai) Co., Ltd., Espressif Systems, Amlogic, Shanghai Awinic Technology, SG Micro Corp, etc. On the infrastructure side, the CEO of Broadcom stated that the company's customers are developing three to five-year AI infrastructure investment plans, and it is expected that the investment boom in artificial intelligence by major technology companies will continue until the end of 2030. A situation of continuous breakthroughs in AI applications and uncertain patterns, major manufacturers are intensifying the AI arms race, continuing to recommend AI infrastructure-related targets such as Montage Technology, JoulWatt Technology, etc. Additionally, TechInsights predicts that global IC sales will grow by 17% in 2025.The investment boom in AI is expected to continue until the end of 2030. With constant breakthroughs in AI applications and an uncertain landscape, major manufacturers are increasing their efforts in the AI arms race. We continue to recommend AI infrastructure-related investments in companies such as Montage Technology, JoulWatt Technology, Shenzhen Techwinsemi Technology, Shanghai Bright Power Semiconductor Co., Ltd., Loongson Technology Corporation, 3peak Incorporated, and Suzhou Novosense Microelectronics. Additionally, TechInsights predicts a 17% increase in global IC sales and a 26% increase in IC revenue by 2025. We also recommend companies benefiting from increased sales and capacity utilization, such as Semiconductor Manufacturing International Corporation, HUA HONG SEMI, JCET Group Co., Ltd., TongFu Microelectronics, and Shanghai V-Test Semiconductor Tech.Risk warning: The domestic substitute process falls short of expectations; downstream demand falls short of expectations; the risk of intensified industry competition; the risk of unfavorable changes in international relations.