CITIC SEC: DeepSeek app may be on the verge of an outbreak, recommending leading domestic computing power companies and operators.

CITIC SEC has released a research report stating that DeepSeek, through technological breakthroughs and ecological openness, is expected to drive the rapid development of the domestic AI industry. DeepSeek provides domestic AI chip manufacturers with technical validation and commercialization opportunities, as well as helping cloud computing companies and operators to achieve service upgrades and revenue growth. Its low cost, high performance characteristics are reshaping the global AI industry chain and pushing China's transformation from "computing power follower" to "ecosystem leader". CITIC SEC's main points are as follows: 1. Domestic AI chips support the rapid deployment of DeepSeek, benefiting the Ascend industry chain leader As of February 7, 2025, DeepSeek has completed compatibility with 16 domestic AI chip companies (such as Huawei Ascend, Muxi, TianXing ZhiXin, etc.). Huawei Ascend, through self-developed inference acceleration engines, enables DeepSeek models to achieve deployment effects equivalent to high-end GPUs on Ascend hardware. DeepSeek's low cost feature (training costs are only 3-5% of industry giants) reduces the threshold for enterprise access, and the substantial growth in demand for inference scenarios on the consumer end is expected to promote the application of domestic AI chips in inference scenarios, to some extent reducing dependence on overseas hardware. As a leading domestic AI chip, Huawei Ascend has already assisted three major operators and Iflytek Co.,ltd. in completing the Ten Thousand Card Cluster with the help of Ascend 910B, and is expected to further assist domestic AI development with 910C by 2025. 2. Cloud service providers accelerating adaptation, application side expected to see breakthroughs, benefiting AIDC and device leaders Major domestic cloud computing giants such as Huawei Cloud, Tencent Cloud, Alibaba Cloud, Baidu Cloud, Volcano Engine, JD Cloud, Tsinghua Unigroup Cloud, as well as independent cloud and intelligent computing enterprises like Wuwen Xiqiong, Silicon-based Shanghai, and Digital China Group, have all announced their support for DeepSeek. Each cloud service provider provides "one-click deployment" services by pre-installing DeepSeek models (such as the R1/V3 series), reducing the development threshold for enterprises and attracting more customers to use their cloud platforms. In the past 1-2 years, domestic cloud service providers have been plagued by frequent price wars, affected by weak demand from government and enterprise clients. However, cloud service providers can now implement ready-to-use solutions for models from various manufacturers such as Baichuan, Qianwen, Zhipu, and DeepSeek by decoupling the strong binding between large models and GPU hardware, creating high-performance cost-effective solutions, which is expected to significantly stimulate the demand for on-cloud and open-source large models, thereby enhancing profitability. Furthermore, the resource deployment of each cloud service provider relies heavily on AIDC, switches, servers, and other computing bases, as the rapid deployment of open-source AI large models and increased user traffic can significantly promote the use of idle data centers, and increase the deployment rate of AIDC core data centers. Positive views on the widening revenue boundaries of domestic cloud service providers and the rapid increase in AIDC deployment rates. 3. All operators fully access DeepSeek, optimistic about the upgrade of operator cloud computing business and monetization of intelligent centers China Telecom Corporation, China Unicom, China Mobile Limited have all announced full access to DeepSeek, and through their platforms and resources, the three operators have realized the wide application of DeepSeek in various scenarios and products, which is expected to accelerate the revenue growth of operator cloud computing. 1) China Telecom Corporation: relying on the "Huanxi" intelligent computing platform to achieve full-stack localization inference services, focusing on research and universal AI scenarios, optimizing document retrieval and intelligent conversation services through DeepSeek. 2) China Mobile Limited: Mobile Cloud has deeply integrated DeepSeek models and integrated its self-developed COCA computing power native platform, achieving the convenience of "ready-to-use" services. 3) China Unicom: Based on the Ascend ecosystem's "Xing Luo platform", supports multi-product scenarios such as cloud desktops and programming assistants, improving customer experience. Full access to DeepSeek also helps in the development of intelligent computing businesses Currently, operators' intelligent computing businesses have three service models: intelligent computing IDC services, providing IDC+ hardware services to customers; AI computing power service models, providing computing power services externally based on self-built intelligent computing centers; and "AI+" one-stop services. By 2024, the three major operators will have invested in multiple domestic chip Ten Thousand Card clusters, but the proportion of services provided externally is not high. However, with high-quality intelligent computing centers and network platforms across the country, operators are able to fully support the deployment, inference, and fine-tuning of DeepSeek, which helps to leverage high-quality operator intelligent computing centers and improve operator revenue from intelligent computing and AI businesses, with prospects for the profitability of emerging businesses for operators. Risk factors: Development of DeepSeek falls short of expectations; risks of delays in domestic new infrastructure and digital economic policy implementation; traffic growth falls short of expectations; capital expenditures of cloud service providers and operators fall short of expectations; geopolitical risks; intensifying industry competition; risks of technical solution iteration.