CLSA: China's AI cycle enters commercialization phase, TENCENT (00700) is top pick

CLSA released a research report stating that China's AI development cycle is shifting from technological breakthroughs to scalable commercial returns. On the infrastructure side, super nodes are becoming the preferred architecture for trillion-parameter AI models, with scale-up extending from single servers to rack-level systems, creating new investment cycles in AI networking, switching, and system integration. On the application side, leading internet platforms are demonstrating to the market that AI investment and ROIC are no longer mutually exclusive, with cloud monetization, model upgrades, advertising efficiency, and AI Agent deployment beginning to contribute to earnings visibility. CLSA believes the market is transitioning from valuing AI purely on innovation potential to assessing who can deploy at scale, monetize usage, and sustain cash flow generation. The emerging winners are expected to be companies that control key AI infrastructure or possess large user ecosystems capable of commercializing AI at scale. The report notes that AI monetization is becoming increasingly evident through cloud services, agents, and advertising optimization, while model upgrades continue to narrow the gap with global peers. Earnings growth is expected to accelerate in the second half of this year, supporting a re-rating driven by improved AI execution and profitability. The top pick is TENCENT (00700), rated "High Conviction Outperform," with CLSA noting that Tencent's AI ToC commercialization path is becoming increasingly clear. BABA-W (09988) possesses the most mature AI ToB commercialization model among Chinese internet platforms and is rated "Outperform." Additionally, Baidu Group-SW (09888), BEKE-W (02423), BILIBILI-W (09626), JD-SW (09618), KUAISHOU-W (01024), MEITUAN-W (03690), NTES-S (09999), POP MART (09992), TME-SW (01698), TRIP.COM-S (09961), and Z.AI (02513) also received "Outperform" ratings.