BOCOM INTL: DeepSeek drives AH technology stocks outperforming the market, CSP capital expenditure may reach a new high.

BOCOM INTL released a research report stating that the recent strong rise of DeepSeek has fueled enthusiasm in the market for artificial intelligence and its application theme stocks, with technology stocks in both A-share and Hong Kong markets performing well. At the same time, the market is more optimistic about the capital expenditure forecast for the major cloud service providers (Microsoft, Google, Amazon AWS, META) in 2025 compared to before, predicting a 31% year-on-year increase in capital expenditure for the four companies in 2025, up 15% from the previous statistics at the end of November 2024, with the possibility of further upward adjustments. The high investment in CSP in the short term may make the performance of chip companies relatively stable. For CSP, on the one hand, the closed-source model may still be the focus of investment for companies like Microsoft and Google, while on the other hand, CSP will increase their research and development investment in open source models. BOCOM INTL's main points are as follows: - Technology stocks in A-share and Hong Kong markets have performed well in the past month. - From January 9 to February 7, in a month, the MSCI Information Technology Index fell by 1.2%, lagging behind the MSCI Global Index (+2.8%). After Trump announced the "StarGate" investment plan with a total investment of up to $5 trillion, US technology stocks rose, and the emergence of DeepSeek may mean a significant reduction in the cost of training and reasoning for large models in the future, leading to increased market volatility. However, the performance of MSCI software and services is significantly better than that of hardware and semiconductor. In terms of A-share and Hong Kong stocks, the strong rise of DeepSeek has fueled enthusiasm in the market for artificial intelligence and its application theme stocks, with the Wande Information Technology Index in A shares rising by 11.4%, significantly outperforming the broader market (+3.0%), making it the best performing industry among all primary industries; the Hang Seng Technology Index, as a driver of the rise in the broader market, rose by 19.5%, also significantly outperforming the Hang Seng Index (+9.8%). - The capital expenditure of major overseas cloud service providers is expected to maintain a 31% year-on-year growth rate in 2025. - Overseas cloud service providers such as Microsoft, Google, and META have successively released their latest quarterly results and indicated on their earnings calls that they will continue to invest heavily in artificial intelligence. The market is more optimistic about the capital expenditure forecast for the major cloud service providers (Microsoft, Google, Amazon AWS, META) in 2025, predicting a 31% year-on-year increase in capital expenditure for the four companies in 2025, reaching $259.4 billion, up 15% from the previous statistics at the end of November 2024, with the possibility of further upward adjustments. The high investment in CSP in the short term may make the performance of chip companies relatively stable. - CSP and chip companies may each take a strategic approach to diversified investments in different technologies. - Faced with the strong rise of DeepSeek, from a strategic perspective, both CSP and chip companies may shift from relatively concentrated investments in stacked computational power to diversified investments in different technologies, although this may be a gradual process. Specifically, for CSP, on the one hand, the closed-source model may still be the focus of investment for companies like Microsoft and Google, while on the other hand, CSP will increase their research and development investment in open source models. As for chip companies, companies including NVIDIA and AMD may be developing GPU chips while also exploring ASIC solutions. - TSMC's January revenue increased by 36% year-on-year, and the demand for artificial intelligence is not diminishing. - Driven by the continuous demand for AI chips, TSMC's (2330TW/TSM US/Unrated) revenue in January was NT$293.3 billion, an increase of 36% year-on-year. TSMC's monthly revenue continued to grow by over 30% year-on-year, indicating that the construction of artificial intelligence infrastructure is still in a period of rapid growth. In addition to artificial intelligence infrastructure, the industry is also experiencing a moderate recovery. According to TrendForce data, in 3Q24, TSMC continued to rank first in the global semiconductor foundry market with a share of 64.9%, a significant increase from 56.1% in 3Q22 and 57.9% in 3Q23. - BOCOM INTL believes that this reflects TSMC's important position in semiconductor foundry in AI and advanced packaging. Whether it is GPU or ASIC solutions, wafer foundry is done through TSMC. In addition, Semiconductor Manufacturing International Corporation's share increased from 5.3% in 3Q22 to 6.0% in 3Q24, reflecting the advancement of domestic wafer foundry. Investment recommendation: It is recommended to focus on artificial intelligence infrastructure targets (computational power GPU, ASIC, HBM, communication networks) while more diversely allocating technology industry assets, including domestic alternatives to semiconductor design, wafer foundry, and semiconductor equipment. The software industry may benefit after the rise of DeepSeek.