Cinda Securities: ByteDance's AI investment continues to increase, focusing on both C-end and B-end; it is recommended to pay attention to Hand Information and others

According to the Zhitong Finance APP, Xinda Securities released a research report stating that ByteDance ranks first among major companies in terms of AI investment. In terms of organizational structure, ByteDance has specifically established the Flow department and Seed team, dedicated to the application development and fundamental research of AI large models, respectively. In terms of resource investment, ByteDance is at the forefront of the industry in server procurement, IDC construction, and the scale of AI IaaS services. ByteDance's C-end has unique traffic and ecological advantages, and large models will be a key factor for its B-end success. On the C-end, ByteDance helps Doubao establish a user scale advantage through traffic entrances and streaming methods via its platforms such as Douyin, Toutiao, and Juyuan Engine. The B-end Agent market is expected to see early growth, greatly benefiting information technology vendors.

Investment recommendation: It is recommended to pay attention to Hand Enterprise (300170.SZ), Lexin Technology (688018.SH), Runze Technology (300442.SZ), and Lenovo Group (00992).

Key points from Xinda Securities are as follows:

Continuously increasing AI investment, ByteDance ranks first among major companies in AI computing power investment. In terms of organizational structure, ByteDance has specifically established the Flow department and Seed team, dedicated to the application development and fundamental research of AI large models, respectively. In terms of resource investment, ByteDance is at the forefront of the industry in server procurement, IDC construction, and the scale of AI IaaS services. Specifically, ByteDance's server procurement is expected to reach USD 8 billion in 2024, ranking first among major domestic enterprises, with GenA IIaaS service market shares ranking first and second in the domestic market in the second half of 2023 and the first half of 2024, respectively.

Doubao has made rapid progress in a short time, with continuous updates in various test performances. By December 2024, Doubao's large model has improved its comprehensive capability by 32% compared to the May version, aligning fully with GPT-4o levels in the MMLU_pro evaluation set. In just the past month, Doubao's large model 1.5 has explored new capability boundaries, achieving the best scores in multiple authoritative evaluation benchmarks in knowledge, code, reasoning, and Chinese, with overall scores surpassing industry-leading models such as GPT-4o and Claude 3.5 Sonnet, reaching a globally leading level. The input price for Doubao's visual understanding is 0.003 yuan per thousand tokens, which is 85% lower than the industry average (data as of December 18, 2024).

ByteDance's C-end has unique traffic and ecological advantages, and large models will be a key factor for its B-end success. On the C-end, ByteDance helps Doubao establish a user scale advantage through traffic entrances and streaming methods via its platforms such as Douyin, Toutiao, and Juyuan Engine. According to data from 36Kr, in December, Doubao ranked first, Kimi second, and Wen Xiaoyan third, with Doubao increasing by 18.64% month-on-month, reaching 71.16 million monthly active users, showing a significant advantage over competitors and providing a broad user base for the subsequent promotion of C-end applications or hardware. On the B-end, ByteDance builds its B-end ecosystem through Volcano Engine (infrastructure platform), Kouzi (AI application development platform), and Feishu (enterprise collaboration platform). However, compared to major companies like Alibaba and Huawei, ByteDance is a latecomer in the B-end market, with a significant gap in user data. Large models, as essential information technology tools for enterprises in the future, may be the key factor for ByteDance to capture the B-end market The B-end Agent market is expected to see early growth, greatly benefiting information technology vendors. According to data from Guanyan Tianxia, the market size of AI Agents in China was CNY 55.4 billion in 2023, and it is expected to reach CNY 852 billion by 2028, with an average annual compound growth rate of 72.7%, likely leading to a reconstruction of the entire SaaS application system. In B-end scenarios, Agents can serve as digital employees, personal assistants, marketing customer service, and other roles, truly creating value for enterprises. In terms of corporate investment, data from Volcano Engine indicates that currently, 64% of Chinese enterprises expect their investment in AI to grow by 10%-30%. The deep application of large models in enterprises must be realized through the embedding of Agents in applications, relying on information technology vendors for implementation, and these vendors are expected to benefit from token-sharing revenue, especially those with widely applicable scenarios.

Risk factors: Policy advancement may fall short of expectations; technological development may fall short of expectations; market demand may fall short of expectations