CMSC: Alibaba Cloud continues to exceed expectations, continues to recommend AI infrastructure and applications.

CMSC released a research report stating that, according to the performance exchange conference call after Alibaba Group Holding Limited Sponsored ADR's financial report, Aliyun saw explosive growth in inference demand starting from the Chinese New Year, with approximately 60% to 70% of the new demand being for inference. This was mainly due to the outstanding performance and low price of the DeepSeek-r1 model, which drove a significant increase in demand across the industry. With the explosive growth in inference demand, Aliyun is expected to continue expanding its customer base and extending industry coverage, helping to increase the overall profit margin of AI services. DeepSeek has significantly increased domestic inference demand, and there is still room for improvement in cloud service profit margins. It is recommended to continue focusing on AI infrastructure and applications, with a focus on AliChain-related targets for infrastructure and leading companies in segmented areas of high-quality scenarios for applications. CMSC's main points are as follows: Capital expenditure plan significantly increased, with investment exceeding the past ten years in the next three years AI-related product revenue in Aliyun business has achieved triple-digit growth for six consecutive quarters, and the future growth rate of cloud revenue driven by AI will continue to increase. Alibaba's capital expenditure this quarter has increased significantly to 31.775 billion yuan, an increase of over 80% quarterly. The group's investment in cloud and AI infrastructure in the next three years is expected to exceed the total sum of the past ten years, with plans to increase investment in AI/cloud infrastructure, AI basic model platforms and native applications, and existing business AI transformation. In the near future, a deep inference model based on Qwen2.5-MAX will be launched. DeepSeek drives a significant increase in inference demand, with room for improvement in cloud service profit margins According to the performance exchange conference call after the financial report of Alibaba Group Holding Limited Sponsored ADR, Aliyun has seen explosive growth in inference demand since the Chinese New Year, with approximately 60% to 70% of the new demand being for inference. This is mainly due to the outstanding performance and low price of the DeepSeek-r1 model, which has driven a significant increase in demand across the industry. With the explosive growth in inference demand, Aliyun is expected to continue expanding its customer base and extending industry coverage, helping to increase the overall profit margin of AI services. DeepSeek will release 5 open source code repositories, benefiting application development On February 21, the DeepSeek AI team announced on social media that they will gradually release 5 open source code repositories next week, officially kicking off the OpenSourceWeek event. In addition, on February 18, DeepSeek released a purely technical paper on NSA on social platforms. DeepSeek stated that NSA is a sparse attention mechanism that is highly adapted to hardware and can be natively trained, achieving ultra-fast long context training and inference. Through optimization design for modern hardware, NSA improves inference speed while reducing pre-training costs and not sacrificing performance. In general benchmark tests, long context tasks, and instruction-based inference tasks, NSA's performance is comparable to or even surpasses full attention models. Government actively adopts DeepSeek, highlighting the role of state-owned cloud services According to Caijing Society, so far, local governments using DeepSeek have spread across all provinces, cities, and districts in the country, with the most concentrated in developed areas in the east at the county level, and applications have expanded from cultural tourism promotion to document writing, government services, and policy consulting. State-owned cloud services, due to their safety and stability characteristics, are more likely to serve government agencies and state-owned enterprises and will benefit from the comprehensive popularization of this round of DeepSeek. Investment advice: Emphasize the major changes in domestic AI, focus on domestic computing power industry chains Continue to emphasize the importance of leading industry chains in the public cloud sector, with Alibaba Group Holding Limited Sponsored ADR(W 09988) and other related companies in the Alibaba Group. Regarding Huawei, focus on Digital China Group(000034.SZ) and Talkweb Information System(002261.SZ). The upward cycle of capital expenditure is driving an increase in demand for chips and servers. Focus on Hygon Information Technology(688041.SH), Dawning Information Industry(603019.SH), Inspur Electronic Information Industry(000977.SZ), and Cambrian(688256.SH). Significant increase in overall AI investment is positive for applications, and it is recommended to continue focusing on leading companies in segmented areas of high-quality scenarios. Consider Beijing Kingsoft Office Software, Inc(688111.SH), Yonyou Network Technology(600588.SH), KINGDEE INT'L(00268), Weaver Network Technology(603039.SH), Digiwin Co.,Ltd.(300378.SZ), XUNFEIHEALTH(02506), Iflytek Co., Ltd.(002230.SZ), Hithink RoyalFlush Information Network(300033.SZ), and Beijing Thunisoft(300271.SZ). DeepSeek integrates into government systems.State-owned enterprise cloud roles highlighted. Recommendations include: INESA Intelligent Tech Inc. (600602.SH), Shenzhen Sed Industry (000032.SZ), Beijing E-Hualu Information Technology (300212.SZ), Taiji Computer Corporation (002368.SZ). For government IT, focus on Fujian Boss Software Corp. (300525.SZ), Guotai Epoint Software (688232.SH), SDIC Intelligence Xiamen Information (300188.SZ), Beijing Egova (300075.SZ).Risk Warning: AI development falls short of expectations; industry competition intensifies risks.