CITIC Securities Co., Ltd.: The importance of domestic AI computing power is highlighted, and the investment opportunities in the data industry chain have not been fully recognized

According to the information from CITIC Securities on the Zhitong Finance and Economics App, the global technology sector has experienced a significant decline, intensifying concerns in the capital markets. The progress of AI technology continues, with stability seen in revenue, profit, cash flow, and CAPEX among the major US tech giants based on their quarterly reports. The sustainability of CAPEX for these giants is expected to continue until 2024. Following the significant adjustment of US tech stocks, new allocation opportunities are expected to emerge. In the Chinese technology sector, opportunities in the AI computing power industry have been well recognized, presenting opportunities for increased positions following the adjustment in US stocks. Investment opportunities in the data industry chain are undervalued, with related company valuations at historical lows, showing investment potential.

Key Points from CITIC Securities:

US Tech Stocks: AI large models continue to iterate, with NVIDIA benefiting from Scaling Law and high CAPEX by tech giants.

Since the beginning of 2023, the Nasdaq has risen by about 80%, with major contributions to the increase coming from tech giants NVIDIA (19%), Microsoft (11%), Apple (11%), Amazon (9%), Google (8%), Meta (8%), and Tesla (3%). Currently, Apple (USD 3.3 trillion), Microsoft (USD 3 trillion), and NVIDIA (USD 2.6 trillion) are the top three companies globally by market value, corresponding to the mobile, cloud computing, and artificial intelligence technological trends.

NVIDIA is the biggest beneficiary of AI infrastructure investment, possessing significant competitive advantages in technology and products. According to the financial reports of the six major tech giants in the first half of the year, their combined CAPEX reached USD 107.8 billion (+40% YoY), supporting NVIDIA's rapid revenue and profit growth. Based on the mid-year guidance from tech giants, the expected total CAPEX for the second half of 2024 and the full year 2025 are projected to be USD 133.5 billion (+49% YoY) and USD 250.4 billion (+3.8% YoY), respectively.

In terms of technological progress, despite the delay of OpenAI GPT-5, the market's expectations for AGI have shifted from "sprint" to "marathon", while other model companies continue to iterate, such as Meta Llama3.1 (405B) and Anthropic Claude3.5.

Chinese Tech Stocks: The importance of domestic AI computing power is highlighted, traditional industries are undergoing "triple transformation", and investment opportunities in the data industry chain are underestimated.

Constraints on AI training chips limit the construction of computing power infrastructure and model training progress. There are two types of investment opportunities in the AI computing power field: 1) participating in global division of labor, entering NVIDIA and overseas intelligent computing power industry chains, 2) domestic computing power and Chinese local AI computing solutions. In the medium to long term, the importance of domestic computing power is becoming more prominent, requiring patience for technological iteration and gradual maturity.

Two directions have emerged for AI large models: 1) general large models following the global technological frontier but facing computing power bottlenecks, 2) AI evolving towards vertical scenarios and deep application in industries. In vertical scenario applications, leading companies aim to enhance overall competitiveness through AI, presenting investment opportunities: to achieve intelligence, traditional enterprises need the assistance of data infrastructure providers, data management suppliers, and data service providers to fill the gaps in informatization and digitalization. Under the trend of "triple transformation" towards informatization, digitalization, and intelligence, rich investment opportunities may emerge in domestic computing power, model algorithms, data governance and the data industry chain, and AI applications Policy Impact: From the "Third Plenum", the importance of technology in economic development has significantly increased, with the data industry chain and AI industry chain as focal points.

The "Decision of the Central Committee of the Communist Party of China on Further Deepening Reform and Advancing China's Modernization" (referred to as the "Decision") places great emphasis on the development of technology, nurturing new productive forces. Under policy guidance, the importance of the development of artificial intelligence and the data industry is highlighted. Emphasis is placed on technological innovation, calling for the establishment of a high-level socialist market economy system, the improvement of mechanisms to promote high-quality economic development, and the establishment of mechanisms to support comprehensive innovation.

The "Decision" requires the improvement of tailored mechanisms for the development of new productive forces, and the enhancement of systems to promote deep integration between the real economy and the digital economy. Emphasis is placed on the importance of artificial intelligence and the data industry, strengthening the application of new infrastructure construction, promoting the empowerment of artificial intelligence in various industries, and building internationally competitive digital industry clusters.

Risk Factors:

Risks of technological innovation falling short of expectations; Risks of intensified competition in hot sectors of industrial segmentation; Risks of continued tightening of policy regulation in the technology field; Risks related to policy regulation of private data; Risks of potential ethical, moral, and user privacy issues in AI; Risks of enterprise data leakage and information security; Risks of global cloud computing market development falling short of expectations; Risks of weak macroeconomic growth leading to government and corporate IT spending below expectations; Risks of industry policies not meeting expectations; Risks of global liquidity falling short of expectations; Risks of further increase in global capital hedging demand due to continuous appreciation of the Japanese yen; Risks of escalating international trade frictions, and so on