EB Securities: The power supply system of AI data centers is showing a trend of transitioning from AC UPS to HVDC. Relevant companies are expected to benefit greatly.

EB SECURITIES released a research report stating that there is a trend in the AI data center power supply system moving from AC UPS to HVDC, with related companies expected to fully benefit. With the rapid development of the AI industry, the advantages of HVDC in AI data centers are becoming prominent, and its penetration rate is expected to continue to increase. The domestic data center HVDC market has a high concentration, and companies with mature HVDC products and those with the potential to develop HVDC products will see development opportunities. It is recommended to focus on Hangzhou Zhongheng Electric (002364.SZ) with rich experience in HVDC products; Shenzhen Hopewind Electric (603063.SH) with mature power electronics technology experience; Kehua Data Co., Ltd. (002335.SZ) and Shenzhen Kstar Science & Technology (002518.SZ) with the potential to develop HVDC products. The main points of EB SECURITIES are as follows: The data center power distribution system is the circuit system that starts from the power line entering the user, passing through high and low voltage power distribution equipment to the load. The data center power distribution system mainly includes mains supply, high voltage distribution system, diesel generator system, automatic transfer switch system, input low voltage distribution system, uninterruptible power supply system, busway distribution system, and rack distribution system. The power distribution system is the "heart and blood vessels" of the data center, responsible for delivering energy to every device in the system, playing a crucial role in the data center. AC UPS and HVDC are the two main power supply solutions for data centers today. Data center power supply solutions primarily include AC UPS (uninterruptible power supply) architecture, HVDC (high voltage direct current) architecture, medium voltage direct supply integrated power supply architecture (Panama power) and power routers, with AC UPS and HVDC being the two most widely used power supply solutions for data centers. In the AC UPS power supply architecture, AC mains power needs to be converted through the AC/DC rectification stage and DC/AC inversion stage to provide the power needed for the load devices; while the HVDC power supply architecture eliminates the inversion stage and can have a higher power efficiency. The Panama power is an IDC power supply solution developed by Alibaba in conjunction with Delta, which has flexible integration in multiple core areas, with higher efficiency and smaller footprint, mainly deployed on a large scale by Alibaba. The energy efficient router (EER) can meet the integration requirements for load storage and load requirements, helping to connect data centers and green power, and is expected to be gradually applied in the future. With the rapid increase in AI computational demand, HVDC with significant advantages is expected to gradually replace AC UPS in the future. 1) The rapid growth in computational demand is driving the continuous increase in electricity demand in AI data centers. HVDC can output higher voltage levels, with commonly used output voltages of 240V and 336V, which will develop towards higher voltage levels to meet the growing power demand of AI data centers; 2) HVDC eliminates the inversion stage compared to AC UPS, which is conducive to reducing energy losses and improving reliability; 3) HVDC systems are superior to AC UPS in terms of footprint, construction costs, and operating costs. With the rapid development of AI and the sharp increase in computational demand, the efficiency and other indicators of the power supply system for AI data centers urgently need to be improved, and these factors will continue to drive the development of data center power supply technology from AC UPS to HVDC, with the penetration rate of HVDC in AI data centers expected to continue to increase. The data center UPS market size is steadily increasing, with HVDC still having considerable room for growth. The application of HVDC in China initially started with communication networks and then expanded to internet enterprise data centers, driving a rapid increase in demand for HVDC application; overseas data center HVDC applications are still in the early stages, with Delta already having a 400V HVDC power supply system solution for data centers, which is expected to be gradually promoted in the future. According to CCID CONSULTING, the UPS market size in China will reach 9.77 billion yuan in 2023. Currently, in AI data centers, AC UPS is still the main power supply solution, but the application of HVDC is gradually accelerating; according to data cited by a state-owned enterprise, in the market for AC and DC power supply applications for operators and internet companies in 2023, HVDC accounts for approximately 10% of the total capacity, but its average annual growth rate from 2021 to 2023 is 33%, showing a rapid development trend. In 2023, the top three companies in the UPS market share in China are Huawei, Kehua Data Co., Ltd., and Delta, with a combined market share of over 40%; in 2022, the market concentration of HVDC products in data centers in China is relatively high, with the top three companies Hangzhou Zhongheng Electric, Delta Electronics, and Delta having a combined market share of about 90%, while other suppliers include Beijing Dynamic Power. Risk analysis: Risks include AI technology development not meeting expectations; increased competition risk; and overseas market operation risks.