Liu Yuanhai: Electronic semiconductors may usher in a big market rally, lasting until 2025

Recently, Liu Yuanhai, the director of equity investment at Soochow Fund, shared his views on the current market and his investment strategy during a roadshow.

With nearly 20 years of experience in the securities industry and over 11 years of fund management experience, Liu Yuanhai became famous for leading in returns last year and being known as the "champion of the year." Currently, most of the funds under his management have positive returns. For example, the Soochow Mobile Internet Hybrid Fund has a return of 168.6% for Class A and a 10.96% return in the past year.

The investment team summarized the key points as follows:

1. In the future, for the next 3 to 5 years or even longer, technology stocks are expected to become a very important investment theme in the A-share market.

2. The automotive intelligent industry may enter the ChatGPT era in 2025......

In 2025, the A-share market's automotive intelligent trend may replicate the wave of trends in the A-share market's new energy vehicle electrification in 2021.

1. Looking at this timeframe, the A-share electronic semiconductor trend may be a relatively significant trend, which is expected to continue until 2025.

2. From the second half of this year to next year, there is a high probability of a rebound in profit growth for A-share listed companies. We believe that you can be a little greedy when others are fearful.

5. If the performance of domestic A-share companies in the computing power and light module industry meets market expectations by 2025, based on my experience, the valuation of these companies may increase from the current around 15 times to 20 times or even 25 times next year.

Liu Yuanhai's overall investment outlook remains unchanged from before, focusing on industry trends, concentrating on technology sector investments, and emphasizing three key areas in technology—AI computing power and applications, electronic semiconductors, and automotive intelligence. He believes that in the era of artificial intelligence, the technology industry will become the alpha of the era Below is the essence content organized by the representative of the investment homework (WeChat ID: touzizuoyeben), shared with everyone:

Technology stocks are the main investment theme for the next few years, optimistic about three major directions

Host: Please share your investment philosophy, stock selection logic, and stock selection strategy with us, Liu Bo.

Liu Yuanhai: I have been engaged in investment research for almost 20 years, and my investment philosophy can be basically defined as industry trend investment management.

Why do I have such an investment philosophy? Because from my investment experience, industries that make big money in the A-share market usually have obvious industry trends. Industries with significant industry trends have a high probability of meeting or even exceeding performance expectations, and stock prices may experience what we usually call a "Davis double-click," that is, performance growth and valuation increase.

Based on my 20 years of investment research experience, the industry trend investment method has a high success rate. So, how to find industries with significant industry trends?

From my experience, an industry with a significant industry trend usually has very obvious characteristics and imprints of the times behind it. For example, before 2010, the growth driver of the Chinese economy was investment, so cyclical industries and stocks related to investment performed well in 2010, which is why we call the A-share market in 2010 the era of cyclical stocks.

From 2010 to 2020, the Chinese economy transitioned from investment to consumption. The proportion of consumption in GDP increased from less than 50% to 60%-70%. Therefore, during these ten years, consumer stocks performed well, giving rise to a group of high-performing stocks, such as liquor in the food and beverage sector, pharmaceuticals, and biotechnology. So, we call these ten years the era of consumer stocks.

Now, the country advocates high-quality development, and a key focus of high-quality development is new intelligent productivity, with technology being a key driver of new intelligent productivity. Technology is expected to become a new driver of China's economic growth. At the same time, global general artificial intelligence technologies represented by ChatGPT may drive a new round of innovation in global technology, entering the era of artificial intelligence.

Therefore, looking ahead from this point in time, for the next 3 to 5 years or even longer, technology stocks are expected to become a very important investment theme in the A-share market. In other words, the technology industry is expected to become an alpha industry in the A-share market for the next 3 to 5 years or even longer.

We believe that the driving force behind this round of global technological innovation is AI artificial intelligence. From historical experience, the technology industry belongs to the innovative industry. The greater the innovation, the greater the technology market. When is the technology industry experiencing major innovation? It is when the technology industry produces killer products or technologies that drive global technology into a new innovation cycle, entering a new era, and at this time, there is a high probability of a major technology market.

In history, there have been two rounds, one in the 1990s PC Internet era, and the other since 2010, the mobile Internet era. In these two eras, the technology industry has produced killer products, with personal PCs in the 1990s and smartphones since 2010 When the technology industry enters a new era, the duration of the technology stock market is generally five to ten years, and the technology stock index may increase fivefold or even tenfold.

Last year, we saw the rise of general artificial intelligence technology represented by ChatGPT. We believe that this general artificial intelligence technology may become a killer technology in the technology industry, driving the industry into a new cycle of innovation and entering the era of artificial intelligence.

Referring to the mobile internet era and the PC internet era, we believe that in the era of artificial intelligence, the performance of technology stocks is worth looking forward to.

Furthermore, technology is expected to become a new driving force for China's economic growth. Historically, once an industry becomes a new driving force for China's economic growth, its performance in the secondary market is usually very good.

Therefore, at the current point in time, the technology industry is being driven by two forces: one is the global technology entering the era of artificial intelligence, and the other is China's policy orientation towards technology development. Therefore, we believe that technology stocks may become an important investment theme in the A-share market for a considerable period of time in the future.

The driving force behind this round of technological innovation comes from AI artificial intelligence. So in the future, we need to embrace AI and look for investment opportunities. At the current point in time, we are more optimistic about investment opportunities in AI computing power, electronic semiconductors, and intelligent automotive industries. In the future, we will seek out more promising sub-directions based on the development trends of the AI industry.

Be a little greedy when others are fearful

Host: What is your view on the A-share market at the moment?

Liu Yuanhai: The market has been relatively weak recently, and investors have a lower risk appetite. The trading volume of the A-share market has hit a historical low, at around 480 billion.

We believe that there is a high probability that the current A-share market is at a historical bottom. From my experience, when the market is relatively low, allocating some equity products has a higher probability of making money.

Why do we say this? Let's review the trend of the A-share market in recent years. The highest point of the CSI 300 Index was on February 18, 2021, at 5930 points. After that, it declined in 2021, 2022, and 2023. It wasn't until early February this year that the CSI 300 Index hit bottom at 3108 points.

In other words, from the highest point of 5930 points to the lowest point of 3108 points, over the past three years, the CSI 300 Index has basically halved.

From a historical comparison, this round of comprehensive indexes represented by the CSI 300 Index, whether in terms of adjustment time or adjustment magnitude, has basically reached historical extreme levels. Therefore, we believe that there is a high probability that the current A-share market is in a bottom area.

From an experiential perspective, when the market is at a bottom area, everyone is concerned about whether it can rise. We believe that looking ahead from this point in time, there is a high probability of upward momentum in the A-share market Because we see that the profit growth rate of listed companies may have bottomed out and rebounded. The peak profit growth rate of A-share listed companies in this round was in the first quarter of 2021, and the lowest point was in 2023. In other words, the profit growth rate decline lasted for about two and a half years, roughly eight quarters.

In 2023, the profit growth rate of A-share listed companies may be negative by seven to eight percentage points, with market expectations of around 5% growth in 2024. Therefore, the profit growth rate of A-share listed companies in 2024 and 2025 may moderately rebound.

This is an important driver for the first market rally. In the past two weeks, overseas markets have experienced significant volatility, whether it is the US stock market or the Japanese stock market. The core reason is the unwinding of the yen carry trade strategy causing a liquidity shock. However, after more than half a month of digestion, we believe that the liquidity shock caused by this is coming to an end.

Recently, we have seen significant rebounds in the Japanese stock market and the US stock market, basically returning to previous highs. However, our A-share market is still at a bottom. Moreover, we expect that some policies to stimulate domestic demand may be introduced in the second half of the year.

Therefore, from the second half of this year to next year, there is a high probability of the profit growth rate of A-share listed companies rebounding. We believe that it is possible to be a little greedy when others are fearful. From a medium to long-term perspective, the investment value of the A-share market is quite evident.

The valuation of these computing power companies may increase from 15 times to 20-25 times

Host: Please briefly introduce, Mr. Liu Bo, your focus on the future of AI computing power.

Liu Yuanhai: Whether it is the A-share market or the US stock market, from last year to now, the most eye-catching investment theme in artificial intelligence has been AI computing power. The reason why this area has performed well is because the demand for AI computing power in the future is expected to be very high.

The second largest global AI chip manufacturer expects the global demand for AI chips to be around $400 billion by 2027. In 2023, the global demand for AI chips is $50 billion, and by 2027, it will increase to $400 billion, meaning that the future four-year growth in global AI chip demand revenue will increase by seven times, with a compound growth rate of over 60%, which is very fast.

From last year to this year, AI computing power has shown strong performance because with the development of artificial intelligence, there is a very high global demand for AI computing power.

Looking at the performance of these AI computing power industry chain-related companies in 2024 and 2025. From the cases we have tracked, whether it is the leading AI chip company in the US or the optical module company in the A-share market, the performance of these companies in 2024 and 2025 is relatively strong.

By 2025, the valuation levels of these core companies are roughly within 30 times, with the PE of overseas leading AI chip companies in 2025 possibly around 26 to 27 times, and the valuation of domestic optical module companies is even lower. The PE of domestic optical module and new leading companies may be lower than when the market started in February last year, and the growth in this direction is very fast If the performance of domestic A-share computing power optical module companies in 2025 meets market expectations, based on my experience, the valuation of these companies may increase from the current around 15 times to 20 times or even 25 times next year. Therefore, we believe that A-share computing power represents optical modules, while in the US stock market, it represents AI chips. Looking ahead from this point in time, there are still investment opportunities.

Future A-share electronic semiconductors may usher in a major rally

Host: May I ask Liu Bo for his views on electronic semiconductors and the future development space?

Liu Yuanhai: Historically, electronic semiconductors belong to cyclical growth industries. Based on historical experience, the stock prices of electronic semiconductor companies are generally positively correlated with the global electronic semiconductor industry cycle. Therefore, the investment logic for electronic semiconductors becomes relatively clear, which is to assess the position of the global electronic semiconductor industry cycle.

The global electronic semiconductor industry cycle has clear regularity. A complete cycle generally takes about four years, with an upturn lasting about two and a half years and a downturn about one and a half years.

The low point of this global electronic semiconductor industry cycle should be in the second quarter of 2023. From the second half of last year until the first half of this year, the global electronic semiconductor industry has been on an upward trend.

Based on historical experience, this round of the global electronic semiconductor industry cycle is expected to last until 2025. During the upturn of the global electronic semiconductor industry cycle, the stock prices of electronic semiconductors will perform well.

As for the performance, it depends on the strength of the global electronic semiconductor industry's economic recovery. As mentioned earlier, there is an investment opportunity in AI applications, namely the landing of AI large models on the edge, leading to a wave of device upgrades on mobile and PC ends.

The largest downstream demand for electronic semiconductors comes from mobile phones, accounting for over 30% of demand, and personal computers, accounting for around 30%.

If AI large models land on mobile and PC ends, with higher levels of intelligence, we expect many people to upgrade their phones from the second half of this year to next year.

Many people have not changed their phones for three to four years or even four to five years because they believe that current phones do not differ much from past ones. However, after using a phone for three to four years, the hardware may not work as well. If there is a highly intelligent phone that can chat with you, help educate children with math problems, and become your personal assistant, I believe many people will upgrade to AI phones from the second half of this year or next year.

If there is a wave of upgrades for mobile phones and PCs, the strength of the global electronic semiconductor recovery may exceed market expectations. We believe that the current A-share electronic semiconductor sector is at three bottoms: profit bottom, valuation bottom, and position bottom.

From the second half of this year to next year, with the landing of AI large models on the edge, driving a wave of device upgrades globally for mobile phones and PCs. Therefore, we believe that A-share electronic semiconductors may usher in a significant rally, lasting until 2025, and it is worth everyone's attention.

The Intelligentization of Automobiles in 2025 May Replicate the Electrification Trend of New Energy Vehicles in 2021

Host: May I ask, Mr. Liu Bo, what are your views on AI autonomous driving and new energy vehicles?

Liu Yuanhai: In the past, everyone used to say that the first half of new energy vehicles is electrification, and the second half is intelligentization. I believe many people have experienced the trend of new energy vehicle electrification in the A-share market. From the second half of 2020 to the second half of 2022, it lasted for about two years. During the electrification process of new energy vehicles, many companies' stock prices increased tenfold, creating many high-flying stocks.

At this current point in time, we believe that new energy vehicles may have indeed entered the second half. This is because we have seen the development of AI technology, especially in the field of intelligentization of automobiles. A company overseas has launched the FSD V12 version, which has now been upgraded to version V12.5, and its autonomous driving level may have reached L3, which is basically equivalent to that of an experienced driver.

Just think, if this technology does reach the level of an experienced driver, in the future, we can confidently entrust the driving to intelligent driving software in automobiles. Once we get in the car, we can do many other things.

We predict that the automobile intelligentization industry may enter the ChatGPT moment in 2025. In other words, by 2025, automobile intelligentization may transition from the nurturing period of 0 to 1 to the growth period of 1 to N.

We believe that the A-share market's trend of automobile intelligentization in 2025 may replicate the wave of new energy vehicle electrification in the A-share market in 2021. Therefore, everyone can gradually pay attention to investment opportunities in the A-share market for automobile intelligentization.

Focus Areas for Automobile Intelligentization

Host: Some viewers are asking, in terms of the segmentation of intelligent driving, what specific areas will Mr. Liu Bo focus on?

Liu Yuanhai: Regarding investment opportunities in automobile intelligentization, it mainly consists of two major directions.

The first is complete vehicles, because in the future, vehicle manufacturers will not only make money by selling cars but also through charging for intelligent software. Therefore, the valuation level of vehicle manufacturers with intelligent autonomous driving technology will increase, which is the first investment opportunity.

The second investment opportunity lies in the direction of intelligent driving systems, which can be divided into two levels:

First is the intelligent cockpit, which is visible to us. With the increasing technological advancements in cars, there are many investment opportunities within the intelligent cockpit.

Second is the intelligent driving system, which can be divided into three levels. The first is sensors; for a car to achieve intelligent driving, it must be equipped with sensors such as cameras and LiDAR. As the penetration rate of intelligentization in cars increases, the demand for sensors will also rise, making sensors a significant opportunity. The second investment opportunity is the data collected by sensors being transmitted to the decision-making layer, which mainly involves intelligent driving chips. We believe that its volume elasticity will be relatively large in the future. The third level is the execution layer, where the data calculated by the decision-making layer is handed over to the execution layer for implementation. The execution layer achieves braking and steering, so there are clear investment opportunities related to linear braking and steering braking that everyone can pay attention to Source: Investment Homework Pro Author: Wang Li

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