UBS: China's accelerated development of computing power promotes the progress of AI, bullish on Alibaba (09988) and Baidu (09888).

China is accelerating its investment in the field of artificial intelligence (AI). UBS released a research report stating that despite uncertainties surrounding imported AI chips, it is believed that with the support of national policies and the efforts of major technology companies or local suppliers in research and development, domestic computing power is still constantly developing. This may continue to drive the development of AI and large-scale models in China. The bank is optimistic about Alibaba (09988) and Baidu (09888), as it believes that there will continue to be progress in self-developed chips to strengthen their position in the AI value chain, and there will also be continued investment in AI. UBS mentioned that recent technological positive factors include: 1) rapid improvement at the chip level, despite differences, due to continuous investment in research and development within Chinese internet companies and local GPU suppliers, 2) system-level improvements through super node scale expansion to make up for differences, such as Alibaba's Pangen 128 super node and Huawei's Ascend 384 super node, significantly increasing the number of GPUs per single machine cabinet, partially compensating for the performance gap of a single domestic GPU, achieving higher cabinet-level computing capabilities. The bank believes that this design allows domestic chips to support more complex inference scenarios. In the long term, with advancements in network technology to enable node expansion to large clusters, and possibly even support training workloads. 3) AI model developers are optimizing algorithms for domestic GPUs. DeepSeek's latest v3.2 model uses the domestic GPU programming language TileLang, which can better adapt to the local algorithm ecosystem, such as Huawei's Ascend and Cambricon (688256.SH). UBS stated that most internet companies are accelerating the development of ASIC (application-specific integrated circuits) to optimize internal workloads and improve cost-effectiveness. Google is one of the earliest companies to develop its own AI chips, having iterated multiple generations, while Amazon, META, and Microsoft are also developing their own customized AI chips. In China, Baidu has developed three generations of Kunlun chips, and Alibaba has also begun to deploy self-developed chips. After recent surveys with AI chip experts, UBS summarized three key points. 1) Hardware performance: the computing power of current domestic cutting-edge GPUs is comparable to NVIDIA's Ampere, with the next-generation products targeting Hopper, but overall still lagging behind the Blackwell series. 2) Software ecosystem: some domestic chip manufacturers have established their own software stacks, or added CUDA (Compute Unified Device Architecture) compatibility through translation tools to improve engineers' migration efficiency. However, ecosystem fragmentation limits scale. 3) Supply chain capabilities: in addition to chip design quality, China's capabilities in advanced process technology and high-bandwidth memory production are still in the early stages. In addition to Alibaba and Baidu, UBS also sees potential in Iflytek Co., Ltd. (002230.SZ) for its unique positioning in combining domestic hardware with large model development. Furthermore, the bank prefers Horizon Robotics (09660), Siasun Robot & Automation (09660), NAURA Technology Group (002371.SZ), and Advanced Micro-Fabrication Equipment Inc. China (688012.SH).