Guosen: The business model of model manufacturers is gradually closing the loop, and the main focus of AI investment is shifting towards verifying supply capabilities.

Guosen released a research report stating that, with the explosive growth of Agent-driven Tokens since the beginning of this year, large model vendors' business models are gradually closing the loop, with revenue growth far exceeding the increase in training costs, and the gross profit margin of model vendors continues to rise. The bank believes that the current narrative of AI investment has gradually shifted from the demand side to whether the supply side can support future order deliveries. Therefore, the release of self-developed chips in this quarter's cloud factory financial reports is crucial to the profitability of cloud factories, as Amazon and Google continue to climb in cloud business OPM due to sufficient reserves of self-developed chips. The bank continues to recommend cloud vendors with large model capabilities and self-developed chip capabilities, and recommends BABA-W (09888) and BIDU-SW (09888) in the Hong Kong stock market. Guosen's main viewpoints are as follows: May Market Review The Hang Seng Tech Index was basically flat in May, with a monthly increase of 0.3%. Meanwhile, the Nasdaq Internet Index had a monthly increase of 2.0% in May. In terms of individual stocks, the performance of internet stocks varied. In the Hong Kong stock market, Baidu Group, NetEase, and Kuaishou were the top three performing stocks this month, while in the US stock market, Microsoft, SEA, and Nvidia were the top three performing stocks. In terms of P/E ratio, the valuation of the Hang Seng Tech Index decreased from the previous month, with a PE-TTM of 20.54x, placing it at the 10.2% percentile since the establishment of the Hang Seng Tech Index. The Nasdaq Index valuation also decreased from the previous month, with a PE-TTM of 40.79x, placing it at the 59.31% percentile in the past ten years. Artificial Intelligence Updates 1) Google: released Gemini 3.5 Flash new model, launched Gemini Omni model; 2) OpenAI: released GPT-5.5 Instant, launched three real-time speech models; 3) Cursor: released Composer 2.5 encoding model; 4) xAI: released Grok Imagine quality model API; 5) Tencent: released OpenSearch-VL, released design intelligent agent Ardot; 6) Alibaba: launched Qwen 3.7-Max-Preview and Qwen 3.7-Plus-Preview; 7) Byte: released all-mode large model Doubao-Seed-2.0-lite; 8) Meituan: LongCat-Video-Avatar1.5 open source; 9) Baidu: released Ernie5.1, released general intelligent agent DuMate; 10) Kimi: KimiWebBridge of the Dark Side of the Moon released; 11) Mianbi Intelligence: released BitCPM-CANN, launched MiniCPM-V 4.6; 12) KNOWLEDGE ATLAS: released GLM-5.1 high-speed version. Internet Industry Updates 1) Gaming: Domestic gaming overseas revenue continues to grow rapidly, with 154 domestic gaming licenses issued in May, with approvals for Netease's "Invisible Shadow Hidden Front" and others; 2) FinTech: Payment institution reserve fund grew by 4.4% year-on-year in April; 3) Short videos: State Administration of Radio, Film, and Television promotes high-quality micro-series projects, with funding support from Douyin and Kuaishou for live-action short films, comic dramas, etc; 4) E-commerce: Millions of merchants heavily invested in 618, with JD.com increasing offline self-operated stores; 5) Local life: JD.com's instant delivery boosts 520 instant gifting, and Kuaishou and Meituan increase efforts in local consumption scenarios. Risk Warning: Policy risks, risks of deterioration in the competitive landscape of the short video industry, risks of macroeconomic downturn leading to slower-than-expected growth in the advertising market, etc.