Tencent AI technology will help with growth, but it may take time

Source: Tianfeng Securities Kong Rong, Wang Mengkai, Li Zeyu

In 2022, TENCENT disclosed the development progress of the Hybrid Yuan model for the first time and launched the Hybrid NLP trillion-scale model at the end of the year.

In March 2023, the management team regarded AI technology as an important growth multiplier for the future and stated that it is rapidly advancing the Hybrid AI large model. In the future, front-end applications can be combined with existing businesses to improve commercial efficiency, and promoting human-machine interaction business can also bring new growth opportunities.

TENCENT AI Laboratory Matrix: Strong Strengths, Each with Its Own Focus

At present, TENCENT's artificial intelligence research and development matrix mainly includes: 1) TENCENT AILab and Robotics X laboratory, which belong to the technical engineering business group and serve as dual basic research departments; 2) TENCENT YouTu laboratory, which belongs to the cloud and smart industry business group; 3) WeChat AI team, which belongs to the WeChat business group.

Among them, the TENCENT AILab research and development team has strong strength, with more than 100 top research scientists and more than 300 application engineers, focusing on basic research and application exploration in the direction of machine learning, computer vision, speech technology, and natural language processing. TENCENT YouTu laboratory was established in 2012, focusing on in-depth research and application exploration of image technology, and was upgraded to a computer vision research and development center in 2018. The WeChat AI team was incubated internally by WeChat, mainly including the WeChat Zhiling team specializing in speech (established in 2011) and the WeChat Zhiyan team specializing in intelligent dialogue/NLP (appeared in WeChat public class in January 2019).

Hybrid Yuan Model Tracking

TENCENT first disclosed the progress of the Hybrid Yuan model in April 2022. The model fully covers basic models such as NLP, CV, multimodal, and Wengraph, as well as many industry/field/task models, leading in cross-modal video retrieval and Chinese semantic understanding. In the fourth quarter of 2022, Hybrid Yuan launched the first low-cost and deployable NLP trillion-scale model in China.

The Hybrid team combines the technical strength of TENCENT computing clusters, high-speed network facilities, and machine learning platforms, and researches and optimizes model structure and algorithms, greatly reducing the training cost of trillion-scale models.

On April 14th, TENCENT Cloud released the new generation HCC high-performance computing cluster, equipped with the latest generation H800 GPU from NVIDIA, and the server access bandwidth was increased from 1.6T to 3.2T. The computing power performance was improved by 3 times compared with the previous generation, further shortening the training time. It is currently the most powerful large-scale model computing cluster in China, and it broadens the way for the training of Hybrid Yuan models.

Exploration of TENCENT AI Technology Applications

Since 2021, AI application exploration has accelerated. WeChat's ToC entrance advantage is obvious, and there will be opportunities in the future to seize the opportunity of the new round of "human-machine interaction" entrance changes. TENCENT's ToC direction has a natural advantage in interactive entry. WeChat is currently the largest application in terms of user scale in China and is frequent enough. After the landing of ChatGPT-like products, WeChat has the opportunity to upgrade from the current "everyone interacts" core entry to the "everyone + man-machine interaction" core entry, and complete the service closed loop within the ecosystem through components such as mini-programs.

TENCENT AI+ game application exploration: In the short term, focus on the technical exploration and application of AI-generated 3D content, as well as the attempt of AIBot in the operation link. In the medium and long term, if the entire chain of industrial development, operation, and ecology realizes "AI" development, the potential incremental value is worth looking forward to.

TENCENT AI+ advertising application exploration: In 2022, TENCENT's advertising system will be fully upgraded. Based on the Taiji machine learning platform, it will improve the entire process of advertising understanding, user understanding, and demand matching through the advertising mixed-element model and the advertising precision ranking model, and improve the recommendation accuracy and conversion rate of advertisers. The commercial potential of large models is just the tip of the iceberg.

TENCENT AI+ content service application exploration: Since 2022, AI content production exploration has accelerated. The intelligent writing assistant [Wen Yong (Effidit)] (part of the functions are based on the mixed-element model) has been launched, and the first AI-driven game commentary service has been launched. Recently, the AI intelligent creation assistant "TENCENT Zhiying" has been released, which can quickly generate its own digital person broadcast video.

Investment advice

TENCENT's extensive application scenarios, long-term data and technology accumulation, high-performance computing power and network infrastructure, and leading machine learning platform will help accelerate the iterative optimization and application of mixed-element models.

WeChat has a natural advantage in ToC entry, or is in a relatively advantageous position in the competition for "man-machine interaction" entry. It is recommended to continue to pay attention.

TENCENT's social traffic and the stable competition pattern at the core business level have achieved significant cost reduction and efficiency improvement results, and the medium-term fundamentals have a solid foundation for high growth. The elasticity of game supply is relatively sufficient, and heavyweight new works are worth looking forward to in the future; Video Number provides favorable support for WeChat traffic and advertising growth, and live broadcast e-commerce has potential; Financial technology and enterprise services are expected to recover growth momentum. In the medium and long term, AI technology may become an important growth multiplier for TENCENT.

Maintain the forecast of Non-IFRS net profit for 2023-2025 to RMB 147 billion/172.2 billion/195 billion, corresponding to a year-on-year increase of +27%/+17%/+13%. Maintain the target price of HKD 476 and maintain a "buy" rating.