China Galaxy Securities: Model performance improvement and cost reduction accelerate the penetration of the AI industry, optimistic about the future performance of major gaming companies.

China Galaxy Securities released a research report stating that with the continuous iteration of underlying large-scale model capabilities, current AI applications have already laid the technical foundation for development. The ongoing exploration of AI applications across various industries will have a transformative impact on most industries. The AI industry is undergoing a crucial transformation from technical breakthroughs to the scaling of applications, and the parallel trend of improving model performance and reducing usage costs will accelerate industry penetration. In addition, the game market has maintained a high level of activity since the summer of 2024, and the performance of major companies is expected to be favorable in the future. China Galaxy Securities' main points are as follows: Film Industry The top performers in the market are apparent, and box office revenues have shown year-on-year growth. In September 2025, the nationwide box office revenue was 2.662 billion yuan (including service fees), an increase of 82.83% year-on-year, but a 55.57% decrease month-on-month. In terms of specific film performance, the movie "731" achieved a monthly box office of 1.386 billion yuan, accounting for 57.3% of the monthly box office, which is more than half of the total box office for that month. Gaming Industry Cross-platform connectivity and new product drive, with continued high growth in the scale of PC games. According to Gamma Data: In August 2025, the actual sales revenue of the domestic gaming market was 29.263 billion yuan, a year-on-year decrease of 13.01% and a month-on-month increase of 0.62%. The actual sales revenue of self-developed games in overseas markets was 1.68 billion US dollars, a year-on-year increase of 10.64%. In terms of game performance, Tencent's "Honor of Kings," "Peace Elite," and "Delta Force" ranked as the top three in China's App Store's mobile game revenue list. China Mobile Limited's actual gaming market sales revenue was 21.541 billion yuan, a year-on-year decrease of 4.25% and a month-on-month increase of 0.85%. In terms of client games, the market scale growth has significantly accelerated, with actual sales revenue of 6.637 and 6.563 billion yuan in July and August respectively, representing year-on-year growth of 16.56% and 17.57%. Marketing Industry Overall stability with sectoral trends diverging. According to CTR Media Intelligence data, the overall advertising market expenditure increased by 2.40% year-on-year from January to August 2025. In August 2025, monthly advertising expenditures increased by 7.9% year-on-year and 4.2% month-on-month, maintaining a stable and positive trend. Looking at changes in advertising spending by industry category, from January to August 2025, significant increases were seen in the advertising spending of the postal and telecommunications, entertainment and leisure, and personal goods industries, with year-on-year increases of 77.5%, 43.5%, and 35.2%, respectively. Artificial Intelligence Updates of multiple large-scale models and progress in various fields. Overseas, top companies such as OpenAI, Anthropic, and xA have made breakthroughs in video generation, reasoning capabilities, and long context fields. The application of multi-modal technology in Sora2's text video marks the entry into the product landing stage, while Claude Sonnet4.5's outstanding performance in the programming field reflects deep optimization in vertical scenarios, and Grok 4 Fast's 2 million token context breaks through the technological bottleneck of long text processing. Domestically, represented by DeepSeek, focusing on model architecture innovation and cost optimization, the introduction of sparse attention mechanisms in the DeepSeek-v3.1-Exp platform enables faster and more efficient training and inference in long contexts. We believe that major companies are continuously making progress in video generation, reasoning abilities, architecture innovation, and inclusive services. The AI industry is undergoing a crucial transformation from technical breakthroughs to the scaling of applications, with the parallel trend of improving model performance and reducing usage costs accelerating industry penetration. Risk Factors Risks of AI technology development progress falling below expectations; content regulation risks; risks of industry competition; risks of related technology applications falling below expectations.