Sinolink: Chinese internet giants increase investment in AI, driving related investment opportunities in the industry chain.

Sinolink released a research report stating that Alibaba (09988) had a capital expenditure of 31.7 billion yuan in the fourth quarter of 2024, an increase of 80% compared to the previous quarter. CEO Wu Yongming stated during the financial analyst conference call that in the next three years, Alibaba will focus on its core AI strategy, increasing investment in AI infrastructure, basic model platforms, AI native applications, and the AI transformation of existing businesses. It is expected that the investment in cloud and AI infrastructure will exceed the total of the past decade. In terms of industry prospects, Sinolink believes that industries with high and stable or increasing prosperity in the next 25 years include the AI industry chain (computing power remains high and applications are accelerating), smart driving (such as LiDAR, car-road-cloud, etc.), C-end stock trading software (if the market can maintain a trading volume of over a trillion), Huawei industry chain, low-altitude economy, quantum, etc. Industries with relatively good and sustainable prosperity include data elements, EDA, and going global, with industries that are at a turning point for an upward trend and have good intensity possibly being innovative, military IT, emergency government IT, etc. Industries with low prosperity that may warm up but have uncertain strength or that may start low and then rise seasonally include construction and real estate IT, medical IT, etc. Sinolink's main points are as follows: Alibaba's capital expenditure in the fourth quarter of 2024 was 31.7 billion yuan, an increase of 80% over the previous quarter. CEO Wu Yongming stated during the financial analyst conference call that in the next three years, Alibaba will focus on its core AI strategy, increasing investment in AI infrastructure, basic model platforms, AI native applications, and the AI transformation of existing businesses. It is expected that the investment in cloud and AI infrastructure will exceed the total of the past decade. According to earlier reports, Apple collaborated with Alibaba to develop AI features for iPhone users in China. We believe that first, Alibaba's AI infrastructure capex expenditure has significantly increased, with the most direct beneficiaries being: 1) Alibaba Cloud's IDC supplier partners; 2) Alibaba Cloud's server suppliers. Secondly, Alibaba's increased investment in basic model platforms and AI native applications will provide better AI development support for its ecological partners, with the most direct beneficiaries being: 1) Alibaba-backed or ecosystem software listed companies. Thirdly, the increased investment in AI models, applications, and the AI transformation of existing businesses by Alibaba is expected to increase the demand for software outsourcing services, with the most direct beneficiaries being: 1) software outsourcing listed companies with Alibaba as a key client. Furthermore, we also note that recent news about Tencents Yuanbao, Tencent Cloud, and WeChat's integration with Ds are continuing to ferment. After giants such as Byte and Alibaba start their AI investment cycles, Tencent, another giant, is unlikely to miss this opportunity. We also remind investors to look out for investment opportunities in Tencent's computer-related sectors. Similar to the Alibaba industry chain investment opportunities, they can be categorized as infrastructure suppliers and equity or ecological cooperation computer software companies. In terms of industry prospects, in the next 25 years, we believe that industries with high and stable or upward prosperity include the AI industry chain (with computing power remaining high and applications accelerating), smart driving (such as LiDAR, car-road-cloud, etc.), C-end stock trading software (if the market can maintain a trading volume of over a trillion), Huawei industry chain, low-altitude economy, quantum, etc. Industries with relatively good and sustainable prosperity include data elements, power IT, EDA, going global, with industries at a turning point for an upward trend and with good intensity possibly being innovative, military IT, emergency government IT, etc. Industries with low prosperity that may warm up but have uncertain strength or that may start low and then rise seasonally include security, internet security, industrial software, and capital market IT. Industries with weak prosperity may include construction and real estate IT, medical IT, etc. Investment recommendations: We recommend focusing on the leading domestic generative big model company Iflytek Co., Ltd.; AI hardware is expected to become a new carrier for application landing, so we recommend focusing on Hangzhou EZVIZ Network, ArcSoft Corporation, and others; Polishing AI-related functions can drive C-end application monthly active users and payment rates, so we recommend focusing on Beijing Kingsoft Office Software, Inc., Wondershare Technology Group, and others. Risk warning: Risks of industry competition intensification; risks of technological research and development progress falling short of expectations; risks of downstream capital expenditure cycles fluctuating in specific industries.