Industrial: How do you view the recent adjustment in the technology sector and the change in market style?

One, how to view the recent adjustment of the technology sector and changes in market style? On January 19, we proposed that the short-term market will usher in a new round of upward movement before and after the Spring Festival, with AI leading the structure. Since the Spring Festival, with DeepSeek as a catalyst, multiple positive factors resonated in the industry chain, boosting market confidence in China's technology and economic prospects, driving the market to continue to rise. At present, after the concentrated rise of the AI sector, there are some changes in market style. This week, TMT and other AI-related sectors have experienced significant adjustments, while cyclical sectors such as consumer goods, construction, and real estate have shown excess returns. Regarding the recent changes in market style, we believe: Firstly, AI is still the long-term main theme in the market. With the emergence of DeepSeek in this round of AI market, positive changes are beginning to appear in both the trend and fundamental logic of the domestic AI industry. With the increase in AI penetration rates in various industries and the accelerated implementation of more vertical applications, driven by both fundamentals and policy environment, AI is expected to continue to be the main focus of the market in the mid-term. Similar to the mobile internet in 2013-2014, core assets in 2016-2020, and new energy in 2020-2021. However, on the other hand, in the short term, as the AI market reaches a high point and with the re-emergence of tariff disturbances impacting risk appetite, it is inevitable that there will be a need to digest the overheated market sentiment through temporary fluctuations. On one hand, after the focus on main themes and accelerated market upturn since the Spring Festival, indicators such as trading volume ratio, crowding intensity, and rolling yield differentials that we have been tracking have all indicated a short-term overheating signal in the AI market. On the other hand, the marginal slowdown of the US economy and the resurgence of tariff issues have impacted global risk appetite, especially the high-valuation growth assets represented by AI that are more sensitive to marginal changes. Recent data such as US retail sales, service industry PMI, and initial jobless claims have all been below expectations, indicating a marginal slowdown in the US economy. At the same time, with the resurgence of tariff issues, following the announcement of a 25% tariff on EU goods at a cabinet meeting on February 26, on February 27, President Trump announced through his social media platform "Truth Social" that the proposed tariffs on Mexico, Canada, and additional 10% tariffs on Chinese imports scheduled to take effect on March 4 will go ahead as planned. Global risk appetite has been affected, especially for high-valuation growth assets in the AI sector at high levels, which are more sensitive to marginal changes. This week, global equity assets mostly declined, with larger adjustments in structurally technology growth assets. More importantly, as we have mentioned in previous reports, the market will gradually enter a stage where it is more "reality-focused" in March and April. Investors will consciously seek out some lower positions with policy support and performance support. The continuous evolution of the technology growth style represented by AI in the early stages, in addition to the catalysis of industry trends, has also been driven by the lack of fundamentals and policy vacuum, leading to an increase in market risk appetite. With the convening of the two sessions, the disclosure of January-February economic data, and the release of annual reports and quarterly reports by listed companies approaching, the market will also enter a traditional window where the effectiveness of fundamentals and policy factors will be enhanced. Therefore, the market is consciously expanding towards lower positions that benefit from policy support and marginal improvements in the economy. Second, what high cost-effective directions should be focused on? (1) AI: Long-term trends are still present, short-term focus on relatively low positions and directions with performance support For the current AI sector, it is important to find directions that are relatively low internally and have cost-effectiveness. The AI sector itself covers a huge industry chain from upstream computing hardware to mid-stream software services and downstream applications. While there may be temporary local "overheating" in certain areas, directions with relative cost-effectiveness can still be found. In the short term, new productive forces represented by AI are expected to be the focus of policies during the two sessions, and the mid-term industrial trend is still evolving. After the recent adjustment, the crowding pressure in some directions has been significantly relieved, and the current position is worth actively monitoring and laying out. Combining economic conditions and crowding intensity, among the top 50 detailed directions in the AI industry chain, the relatively low positions with cost-effectiveness that can be focused on currently include liquid-cooled servers, fiber optic cables, high-speed copper connections, optical modules, PCB, etc. 1. Economic conditions With the breakthrough in the AI industry and the recovery of domestic demand, many AI sub-sectors are expected to see improved economic conditions this year. According to market expectations, most sub-sectors of AI are expected to experience accelerated economic growth or a turnaround in difficulties this year. When looking at the number of stocks whose expected net profit for 2025 has been raised among the top 50 detailed directions in AI so far this year, the directions of fiber optic cables, liquid-cooled servers, smart homes, RF components, Internet of Things, AI phones, optical modules, hidden search, digital media, IDC (computing power leasing), PCB, etc., rank relatively high. 2. Crowding intensity After the recent adjustment, the short-term trading crowding intensity in some directions within the AI industry chain has been significantly released, and has now fallen to a moderate level, mainly concentrated in upstream computing hardware such as high-speed copper connections, RF components, AI chips, optical modules, PCB, liquid-cooled servers, fiber optic cables, etc. (2) Domestic consumption: Boosting consumption is a top priority for economic work this year, focusing on consumer goods and new format service consumption that benefit from the "two new" policy expansion Boosting consumption may be an important deployment direction for government policies in March. The 2024 Central Economic Work Conference proposed to "implement more proactive macro policies" and identified "vigorously boosting consumption" as the main task for economic work in 2025. During the State Council's executive meeting on February 10, 2025, it was pointed out that "boosting consumption is the top priority for expanding domestic demand and making the domestic circulation bigger and stronger" and that "there should be a clear change in mindset and giving more prominence to boosting consumption." Consumer goods (automobiles, home appliances, consumer electronics, etc.) and service consumption (film and television media, tourism, etc., across various sectors) may be important focus points for promoting consumption. Consumer goods (automobiles, home appliances, home living, consumer electronics): In 2024, the consumption policy of trading in old for new goods drove high sales of automobiles, home appliances, and related products. In 2025, the "two new" policy further expanded the scope.The subsidy scope is expanding, not only increasing subsidies on existing products such as cars and household appliances, but also continuously expanding to consumer electronics products such as phones. During the Spring Festival, the trade-in program will drive a significant increase in sales of related products, and there is also the possibility that larger-scale long-term special government bonds will be announced during the national "Two Sessions" in March to further support the expansion of domestic demand.Service consumption (multiformat such as film and television media, tourism, etc.): On the one hand, entertainment consumption, represented by the booming growth of Demon Slayer economy and Nezha 2 in entertainment media, is gradually shifting from single content consumption to the IP + derivative model. As a consumer sector with strong driving force and large growth space, it is expected to bring more new growth engines to consumption in the future. On the other hand, the Economic Work Conference specifically emphasized the active development of the first release economy, ice and snow economy, and silver-haired economy. Service consumption, as a major direction in line with consumption upgrade and expansion, is expected to become an important driving force and main source of increment for the current expansion of consumption. Multiple provinces and cities have also proposed to develop diversified consumption models such as ice and snow tourism, low-altitude tourism, performing arts, and events in their government work reports for 2025, under the themes of cultural tourism + diverse industries and diverse industries + cultural tourism. Risk warning: Economic data fluctuations, policy easing below expectations, Federal Reserve rate cuts falling short of expectations, etc. This article is reprinted from the WeChat public account "Yao Wang Hou Shi," author: Xing Zheng Strategy Team; GMTEight Editor: Xu Wenqiang.