China Securities Co., Ltd. Securities: YunCapex's continuous high growth pay attention to Deepseek's computing power service and edge.

China Securities Co., Ltd. released research report stating that the DeepSeek R1 model significantly reduces training and inference costs while maintaining excellent performance indicators. High-performance, lightweight, and low-cost model capabilities will significantly drive the development of edge AI industry. Domestic IoT module manufacturers have the first-mover advantage in the edge AI field and are actively expanding their industrial layout. It is recommended to focus on this area. The main points of China Securities Co., Ltd. are as follows: The four major cloud companies in North America have successively released their financial reports, with capital expenditures maintaining a high growth trend, and the AI infrastructure industry chain remains relatively prosperous. The total capital expenditure in 2024Q4 was $79.5 billion, a year-on-year increase of 76.75% and a quarter-on-quarter increase of 22.60%. The total for the entire year of 2024 reached $250.4 billion, a 62% increase year-on-year. In order to meet the growing demand for computing power and ensure future competitiveness in the AI field, cloud companies continue to innovate their capital expenditures for AI infrastructure construction. It is recommended to pay attention to the computing power industry chain. The R1 model released by DeepSeek significantly reduces training and inference costs while maintaining excellent performance indicators, causing a huge reaction in the industry. It is recommended to focus on the development of edge application scenarios. High-performance, lightweight, and low-cost model capabilities will significantly drive the development of edge AI industry. Edge hardware devices are a key link in the physical output of large model capabilities. Recently, OpenAI's CEO Sam Altman also revealed in an interview with the media that OpenAI will develop a generative AI-specific terminal that can replace smartphones. Domestic IoT module manufacturers have the first-mover advantage in the edge AI field and are actively expanding their industrial layout. Recently, the three major operators, China Telecom Corporation, China United Network Communications, and China Mobile Limited, have successively announced the launch of DeepSeek. It is recommended to focus on computing power/cloud service providers. China Telecom Corporation has fully deployed DeepSeek on the Tianyi Cloud, providing a full-process service from deployment to inference and fine-tuning. Unicom Cloud has adapted the domestic and mainstream computing power to multiple specifications of the DeepSeek-R1 model based on the Starling platform, catering to private and public scenarios and providing comprehensive operational services guarantee. China Mobile Limited's Mobile Cloud has fully launched DeepSeek, achieving full version coverage, full-size adaptation, and full functionality utilization. DeepSeek, as an open-source large AI model, cloud vendors or application vendors can choose to deploy it locally or in the cloud, which is expected to drive demand for computing power infrastructure, and computing power service providers, private cloud/public cloud service providers, etc., are expected to benefit. Risk Warning: International environmental changes affect the safety and stability of the supply chain and may have an impact on the progress of related companies expanding overseas; the development of the artificial intelligence industry may fall short of expectations, affecting the demand for companies in the cloud computing industry chain; intensified market competition may lead to a rapid decline in gross profit margins. Exchange rate fluctuations affect the exchange income and gross profit margin of export-oriented enterprises, including companies in sectors such as ICT equipment, optical modules/optical devices; the development of the digital economy and Digital China construction may fall short of expectations; the development of cloud computing business by telecom operators may fall short of expectations; capital expenditures by operators and cloud companies may fall short of expectations; demand in the communication module and smart controller industries may fall short of expectations.