Goldman Sachs: Outlook for Chinese Internet Giants' Q2 Performance Focused on Cloud Growth and AI Capital Expenditure; Sector Outlook is Constructive

Goldman Sachs Group, Inc. released a research report stating that as the results for the second quarter of major internet companies are about to be announced, key themes to watch include: cloud growth as a highlight, an upward revision of annual capital expenditures, a turning point for trading platform profitability, and increasing market attention to the sum-of-the-parts valuation method. The firm has raised the target price for MEITUAN-W (03690) from HKD 116 to HKD 123, maintaining a "Buy" rating. Goldman Sachs Group, Inc. expects TENCENT (00700) to announce its results on August 12, predicting a 9% year-on-year increase in second-quarter revenue and a 9% year-on-year increase in adjusted EBIT to RMB 75.2 billion. Key topics include the capital expenditure and resource allocation priorities for artificial intelligence, the mixed model strategy, WorkBuddy and WeChat Agent metrics, game product lines, and the growth potential of advertising AI. The firm predicts Tencent's gaming revenue will increase by 11% year-on-year, advertising revenue will rise by 18% year-on-year, and revenue from financial technology and enterprise services will grow by 8% year-on-year, driven by accelerated cloud revenue, though partially offset by weak growth in financial technology. BABA-W (09988) is set to announce its first fiscal quarter results on August 20, with Goldman Sachs Group, Inc. predicting a 9% year-on-year increase in second-quarter revenue and a 33% year-on-year decline in adjusted EBIT to RMB 26 billion. Focus areas include the sources of funding for artificial intelligence capital expenditures, the potential for margin growth in AI cloud/GPUaaS over the next few quarters, the Tongyi Qianwen strategy, e-commerce cash flow, and talent retention. The firm expects Alibaba Cloud's growth to accelerate to 45%, with the cloud business margin improving to 11.1%, and estimates second-quarter investment in instant retail to be around RMB 10 billion. Regarding Meituan, Goldman Sachs Group, Inc. has raised its forecast for adjusted net profit from 2026 to 2028, primarily reflecting reduced competitive intensity in food delivery, expecting the profit per order for food delivery to improve to RMB 0.26, RMB 0.80, and RMB 1.13 in 2026, 2027, and 2028 respectively. The firm predicts Meituan's second-quarter revenue will increase by 10% year-on-year, with adjusted EBIT rising 56% year-on-year to RMB 5.8 billion, and core local business EBIT at RMB 5.8 billion, while in-store dining and hotel EBIT will be RMB 4.4 billion (profit margin 25%). Goldman Sachs Group, Inc. anticipates JD.com, Inc. Sponsored ADR Class A (09618) will report a 3% year-on-year decline in second-quarter revenue and a 587% year-on-year increase in adjusted EBIT to RMB 6.2 billion, with JD.com, Inc. Sponsored ADR Class A retail profit at RMB 13.5 billion (profit margin 4.6%). Focus areas include the retail growth outlook for JD.com, Inc. Sponsored ADR Class A, shareholder return policies, Joybuy's international expansion, and applications of artificial intelligence. For PDD Holdings Inc. Sponsored ADR Class A (PDD.US), Goldman Sachs Group, Inc. predicts a year-on-year revenue increase of 8% in the second quarter and a 4% year-on-year decline in adjusted EBIT to RMB 26.7 billion, with key topics including Temu's GMV and profitability, growth drivers for the main site GMV, community group buying strategy, and applications of advertising technology in artificial intelligence. The firm believes that the performance of major U.S. cloud service providers in the second quarter will have a positive impact on their stock prices. Following recent adjustments in the Chinese internet stocks, the sector outlook appears constructive, with sub-sector preferences in the order of cloud and data centers (GDS Holdings Ltd. Sponsored ADR Class A (GDS.US), VNET Group, Inc. Sponsored ADR (VNET.US), Alibaba, KINGSOFT CLOUD (KC.US)), gaming and entertainment, e-commerce and mobility, as well as artificial intelligence models.