What direction will the market focus on in the year 2025? Wu Chao and Chen Guo of China Securities Co., Ltd. have expressed their latest views.

On the evening of February 11, Wu Chao, Director of the Securities Institute of China Securities Co., Ltd., and Chief Analyst of the TMT industry, along with Chen Guo, Chief Analyst of Securities Strategy Research at China Securities Co., Ltd., shared their views on the market and AI in 2025. The key points summarized by the investment research team are as follows: Wu Chao: 1. Major technological cycles are generally ten years in duration. The technological changes brought about by this round of technology or AI should be similar in scale to ten years ago, but the timing still needs further assessment. 2. Our core view for 2025 is "Domestic computing power to reach its peak, AI applications to take root", these eight words also represent the two directions we are most optimistic about. 3. The biggest difference between 2025 and 2024 is that previous investments were mainly focused on the TMT sector, such as computing power and AI based on TMT, but the keyword for 2025 is opportunities outside of TMT. 4. The difference between 2025 and 2024 is that there will be differentiation. It will no longer be simple speculation on concepts, but rather companies will need to have orders and revenue contributions. 2024 was mainly characterized by speculative investing in concepts, while 2025 will focus more on fundamentals. Chen Guo: 1. In 2025, we express our views on the market in one sentence as "confidence revaluation bull, from liquidity bull to fundamental bull". 2. Next, we will see further liquidity easing, ultimately leading to improved fundamentals, which is a core factor supporting the continuation of the A-share bull market in 2025. 3. Industry allocation in 2025 still needs to focus on the TMT industry, followed by AI+, especially China's intelligent manufacturing. Additionally, attention should also be paid to industries related to the capital market, as well as industries in good cyclical periods. Wu Chao: Domestic computing power to reach its peak, AI applications to take root Host: When discussing bull markets, we often say that technological progress will lead to a bull market. So in 2025, what kind of changes will AI, represented by AI+, bring? Wu Chao: I remember always making the comparison that the round of mobile Internet in 2015 was quite impressive, just as it was ten years ago. Looking further back, 2005 was also a wave of the internet. In fact, major technological cycles are generally ten years in duration. However, the timing may not necessarily be a linear ten years. Last year, our core view on technology was that new technologies similar to the mobile Internet had just begun. In 2013, I wrote a report titled "Mobile Games: The First Money-Making App in Mobile Internet", where for the first time, everyone saw the practical significance of 3G and smartphones. It would actually be reflected in financial statements, bringing incremental performance to companies. Subsequently, as people know, from 2014 and 2015 onwards, the Internet combined with everything, from education, technology to finance, many traditional industries experienced this wave of transformation. So the technological changes brought about by this round of technology or AI, should be similar in scale to ten years ago, the timing still needs further assessment. In the past two years, we have seen that since the emergence of ChatGPT at the end of 2022, large models have begun to rise. This is more like the early stages of the underlying hardware and operating systems of the mobile Internet. Therefore, the impact of this round of technology may have just begun. Host: In the previous round, you used "Internet + everything", this round is now changed to "AI + everything". Wu Chao: Our core view for 2025 is "Domestic computing power to reach its peak, AI applications to take root", these eight words also represent the two directions we are most optimistic about. On one hand, computing power will continue to spiral upward due to application iteration and the demand of large models. On the other hand, although the cost of computing power for large models has been decreasing recently, the demand for inference computing power will increase significantly. Because for applications to truly take root, a necessary condition is that the cost of computing power must decrease. It can truly move from the era of technology or models to the era of applications, somewhat similar to the era of the mobile Internet. In 2013 and 2014, there was also an important change, where the price of data traffic dropped significantly, which made people willing to use it to watch videos or do online shopping. Therefore, a key point to watch in 2025 is the decrease in the cost of large models, which will further drive the application of AI "to take root". Currently, whether it is applications overseas or domestically, most of them are still in non-serious scenarios providing emotional value in the consumer (to C) domain, such as chat customer service, etc. However, in 2025, with the improvement of model reliability and traceability, AI will be widely applied in serious scenarios, such as in the industrial (to B) domain. Host: The application scenarios in the industrial domain are more numerous and complex. Wu Chao: Indeed, in the era of the mobile Internet, there were not many industrial application scenarios, mainly consumer internet directed towards consumers (to C). However, in the AI era, industrial scenarios or those directed towards enterprises (to B) have higher data quality, shorter industry chains, are easier to close the loop, and have greater potential for cost reduction and efficiency improvement. Therefore, this year, the main beneficiaries in the US were some SaaS companies targeting enterprises. Keywords for 2025 are opportunities outside of TMT Host: With a strong demand for AI computing power, what opportunities are there in specific industries for 2025? Wu Chao: I believe that AI will definitely become the foundation of all industries. Looking at the investment fields in the United States since 2022, to some extent, it can be said that "if it's not AI, we won't invest". Traditional industries will also undergo significant changes in their paths due to AI technology. For example, in the electric vehicle industry, the first half is electrification, and the second half is intelligence. This is the profound impact of AI on the electric vehicle industry. Additionally, this year's Nobel Prizes in Chemistry and Physics are both related to AI. Therefore, the biggest difference between 2025 and 2024 is that previous investments were mainly focused on the TMT sector, such as computing power and AI based on TMT, but the keyword for 2025 is opportunities outside of TMT. Because of the industrial trends brought about by AI technology, it will generate a big catalyst in cost reduction, efficiency improvement, and technological transition. (Translation continues in next message)Turning point, allowing some companies to stand out in their original field. These companies may not be in the traditional technology sector, but will benefit from AI technology.I think the good targets may be in these sectors, which is the most important observation perspective for AI investment in 2025. The valuation and performance of these companies actually have more potential than the companies that have been hyped in the technology sector for two years. In 2025, there will also be major changes in domestic computing power, with GPU being the core. Returning to the issue of computing power, the biggest concern in the market right now is whether the marginal growth rate of computing power can still be maintained at a high level. Because investors are more concerned about the growth rate, or the slope. For example, in the past two years, the fastest-growing sectors were the NVIDIA industry chain and domestic computing power. The first quarter of 2023 was a major turning point, as large models appeared at the end of 2022. Since then, the capital expenditure of North American cloud companies has been growing at double-digit rates. In 2025, there will be major changes in domestic computing power. On the one hand, large model manufacturers, such as BAT and ByteDance, will enter a new period of high capital expenditure. On the other hand, in the past, the underlying capital expenditure of China's computing power mainly came from the three major operators, with an annual size of about 300 billion. But in 2025, the capital expenditure of (Chinese) Internet companies may also exceed 300 billion, comparable to the operators. The sum of these two absolute values has never happened in history. The core is still the GPU, and domestic GPUs will be the focus. Unlike buying NVIDIA supply chain in 2024, we can't buy the core GPU companies. Host: So what specific industries can we invest in? Wu Chaoze: In addition to GPUs, the entire industry chain includes servers, network equipment, and data centers (IDCs). With GPUs, assembled into servers, equipped with network equipment, deployed in data centers. This will drive the entire data center's power, liquid cooling, PCBs, and other aspects, with prosperity improving with each iteration. The hardware boom of 2024 will continue Host: I noticed that many stocks in hardware-related fields have already risen in December 2024, will this trend continue into 2025? Wu Chaoze: It will definitely continue. Because the large tech cycle has only just begun. Now that the bottom layer large models are becoming increasingly mature, the application side is increasing significantly. If more industries start to industrialize AI in the future - understanding AI, knowing how to use AI, then the demand will increase significantly. In 2024, the focus was mainly on trading AI concepts, in 2025, the focus will be more on fundamentals However, in 2025, things will be different from 2024, there will be differentiation. It will no longer be about simple concept speculation, but about actual utilization, looking at whether companies have orders and revenue contributions. In 2024, the focus was mainly on speculation over concepts, in 2025, the focus will be more on fundamentals. Many targets in the hardware sector are good choices, even including upstream semiconductors. Now the upstream of GPUs is different from the mobile internet era, as it requires its own operating system, software ecosystem, and advanced process capacity, all of which will be reflected in financial reports. In 2024, our keyword was "diversity", now we are entering a more practical stage. Chen Guo: From a liquidity bull market in 2025 to a fundamental bull market Host: Summarize today's overall view in one sentence. Chen Guo: In 2025, our view on the market can be summarized as a revaluation of confidence, from a liquidity bull market to a fundamental bull market. The core is that since September 24th, the risk appetite in the A-share market has significantly increased. The political meetings at the end of 2024 and the central economic work conference have outlined the tone for 2025, emphasizing loose monetary policy, revitalizing the economy, raising prices, and stabilizing asset prices. Therefore, we will see further liquidity easing and ultimately an improvement in fundamentals, which is the core factor supporting the continuation of the bull market in A shares in 2025. Firstly, from the perspective of business cycles, 2025 will bring changes in fundamentals or economic cycles. From financial cycles, capacity cycles to inventory cycles, in 2025, the Chinese economy and corporate profits show features of a bottoming out and upward resonance in cycles. Specifically: Central government leveraging, central bank balance sheet expansion, and optimization of corporate supply side. Some industries will see a reduction in supply, while others will see an increase in demand, creating a resonance that will boost overall corporate profitability. Looking at specific industries, in 2025, industries with improving fundamentals will increase. In 2024, supported by the policy of replacing old with new, industries like automobiles and home appliances have already shown signs of improvement in domestic demand. In 2025, with the support of loose monetary and fiscal policies and supply adjustments, this improvement will further spread, possibly leading to an improvement in industries like consumer electronics, machinery, etc. Moreover, financial and real estate-related sectors will also see improvements due to efforts to boost capital markets and stabilize the real estate market. Eventually, some late-cycle industries, including consumer and service industries, will stabilize as the overall economy stabilizes. Overall, in 2024, some industries have already shown signs of bottoming out and improving fundamentals. In 2025, due to policy and industry factors, this improvement will spread further. Importantly, from a medium-term perspective, the entire technology industry cycle is still ongoing, especially with the new qualitative productivity represented by AI+, which may further drive China's economic and capital market structural transformation. Preferred industry allocation to TMT Host: From a strategic perspective, if you were to do industry allocation for investors in 2025, how would you do it? Chen Guo: Firstly, based on our judgment of the overall industry cycle and market trend, industry allocation in 2025 should still focus on the TMT industry. Whether looking at the situation in 2014, 2015, or the performance of the US stock market in internet, mobile internet, and the current AI wave, the technology industry is indispensable. However, in terms of overall ranking, my first priority would be TMT, the second would be AI+, especially in China's smart manufacturing sector, as manufacturing is the main focus. Additionally, industries related to capital markets, which are in a good industrial cycle, should also be the focus of industry allocation and logic in 2025 according to our analysis. Overall, in 2025, we believe that bullish thinking is necessary, as the opportunities outweigh the risks in China's stock market.Of course, we also believe that investing in great changes is more important than investing in great companies. It means seizing the industry's transformation in 2025 and positioning ourselves in the most competitive companies.This article is from the "Investment Workbook" WeChat public account, edited by GMTEight: Chen Xiaoyi.