CICC: AI restructuring capital expenditure, domestic cloud-side hardware prosperity rising.

CCB released a research report stating that in the past six months, leading Chinese internet companies represented by top tech enterprises have shown a stronger willingness and confidence in exploring AI big models and commercial innovation based on big models. DeepSeek has further triggered a profound restructuring of global cognitive capabilities for "China AI". With this opportunity, leading domestic CSP companies have sparked a wave of investment, and the bank predicts that their capital expenditures are expected to enter a new upswing cycle driven by AI. In terms of data center investment structure, the bank believes that mainstream domestic suppliers in the areas of servers, switches, optical modules, and more are expected to benefit from this upswing in capital spending. The main viewpoints of CCB are as follows: Leading domestic CSPs accelerate the synergy of AI application side ecosystem, entering a new cycle of upswing in capital expenditures. Overseas AI investment cycles started earlier, with the capital expenditures of the top 4 CSP companies in North America increasing by 63% YoY in 24 years, and according to consistent expectations from Bloomberg, they are expected to further increase by 32% in 25 years. From Intel to Apple, the core participants in overseas AI investments are continuously increasing, driving the continued growth in demand for AI hardware. China's AI investment is reaching a critical point Leading domestic tech companies, represented by internet companies, are actively exploring AI big models and applications. Models like DouBao, DeepSeek-R1, and TongYi Qian Wen continuously push the technological boundaries of AI big models, and the application side of "equal rights for big models" helps empower AI applications in the industry. The bank believes that China's commercialization process of AI is expected to accelerate. The increasing demand side is driving an increase in investments in AI data center fields. The willingness of domestic CSPs to increase investments in data centers is gradually becoming clearer and Alibaba stated at the 3QFY25 earnings meeting that investment in cloud computing and AI infrastructure in the next three years is expected to exceed the total of the past decade. This indicates that the annualized investment from 2025 to 2027 is expected to exceed the level of over a trillion yuan. The bank expects that the curtain for the expansion of domestic AI investments has just been opened, and the investment scale is expected to greatly exceed the peak of the previous capital expenditure cycle driven by traditional cloud computing. Which cloud hardware companies are expected to benefit The bank estimates that by 2025, the total investment in data centers driven by domestic CSPs is expected to reach nearly 400 billion yuan, with a year-on-year growth rate of 79%; with added investments in telecom operators' networks, the total investment in data centers by leading CSPs and operators is expected to reach nearly 500 billion yuan, and by 2027 is expected to further exceed 600 billion yuan. As a core component of data center IT hardware, the bank expects that by 2025, the market space for servers of domestic CSPs & telecom in China will reach 263.2 billion yuan; and the market space for Ethernet switches and optical modules will be 18.9 billion yuan and 22.7 billion yuan respectively. Risks Domestic CSP capital expenditures falling short of expectations, and progress in AI application implementation falling short of expectations.