China Securities Co., Ltd.: AI leads to a sharp increase in demand for high-end passive components. Pay attention to investment opportunities in upstream raw materials industries.

China Securities Co., Ltd. released a research report stating that the current consumer electronics industry is recovering, the industry's prosperity is increasing, and the "trade-in" policy is driving the replacement of large markets. With the development of new energy vehicles and AI, the demand for passive components has surged. The usage of MLCC in new energy vehicles is 6 times that of traditional fuel vehicles. The demand for MLCC in AI servers, AI PCs, and AI smartphones has also significantly increased, with higher performance requirements. The report suggests that the current recovery in demand for consumer electronics is moving upward, catalyzing new consumer resonance with AI. The quantity and performance requirements of passive components have greatly increased, with an estimated annual growth rate of over 30% for MLCC and chip inductors in the AI field by 2030. The report recommends paying attention to investment opportunities in passive components and upstream raw material industries, especially recommending vertically integrated enterprises to fully enjoy the benefits of the entire industry chain upgrade. The main points of China Securities Co., Ltd.'s research report are as follows: - Demand for consumer electronics is increasing, and the "trade-in" policy is driving the large market. - Passive components are currently at the bottom and showing signs of recovery. The domestic "trade-in" policy is expected to stimulate the replacement demand, driving the large market for consumer electronics. Passive components, such as capacitors, inductors, and resistors, are core components, and new applications are emerging with the development of new energy and AI, leading to rapid growth in the consumption of passive components. At the same time, high-end passive components in China are currently largely dependent on overseas supply. With the logic of domestic substitution, the demand for domestically produced high-end products is accelerating. - New energy and AI are brewing a new cycle of demand, accelerating the growth of high-end passive component demand. - New energy vehicles and AI development have higher requirements for the quantity and performance of passive components, especially for high-power, high-frequency, high-reliability, and miniaturized inductors, capacitors, and resistors. The industry is moving towards a new cycle of prosperity. A new energy vehicle requires approximately 18,000 MLCCs per vehicle, which is 6 times that of traditional fuel vehicles. The demand for MLCCs in AI servers, AI PCs, and AI smartphones has increased by 100%, 40%-60%, and 20%, respectively. - Raw materials determine component performance, presenting a development opportunity for upstream raw material industries. - Raw materials determine end performance, and to a certain extent, the performance of passive components is determined by upstream raw materials. With the increase in power of AI servers, traditional ferrite soft magnetic inductors are unable to meet the demand, making metal soft magnetic powder the required choice for core chip inductors. Chip inductors have high barriers to entry, high demand, and high scarcity. The integrated advantages of the powder-core-chip inductor industry chain are prominent. The high-end requirements for MLCCs in new energy vehicles and AI servers, AI smartphones, etc., have higher performance requirements for upstream ceramic powders and nickel powders, leading to increased demand for high-performance fine particle powders. The rapid development of new energy and AI industries also brings development opportunities for upstream raw material industries. The report recommends focusing on related metal new material enterprises in the upstream of MLCC, as the demand for high-end passive components is surging with the development of AI. The barriers to entry for related metal materials upstream are relatively high, with a significant impact on the performance of passive components. Therefore, the report suggests focusing on companies with a high degree of industrial chain integration to enjoy the benefits of the entire industry chain upgrade and to more quickly respond to the upgrading demand for AI terminal performance, deepening the binding of the industrial chain. Risk warning: - Macroeconomic policy risks; - Risks of fast technological iteration and replacement by new materials and technologies; - Risks of industry development falling below expectations; - Risks of raw material supply.