Summary of Key Takeaways from the Conference Call on China's Software and Data Center Industry Industry Overview - The conference focused on the software and data center industry in China, highlighting the significant role of AI as a growth driver for the sector [1][2]. Core Insights 1. **AI as a Growth Driver**: AI is identified as the key growth driver for software companies, with notable progress in AI monetization and increasing AI-related contract values [1][2]. 2. **Operational Efficiency**: Deployment of AI agents and coding is enhancing operational efficiency for software companies [1]. 3. **Subscription Revenue**: Companies with a higher share of subscription revenue, such as Kingdee and Meitu, are showing better growth visibility [1][2]. 4. **Data Center Demand**: There is strong demand for data centers driven by AI, with positive developments in domestic AI chip production to support order visibility [1]. 5. **Public Cloud Growth**: The AI-driven public cloud business is experiencing strong growth momentum [1]. Financial Performance 1. **2Q25 Results**: Software companies reported mostly in-line results for 2Q25, with 1 beat, 12 in-line, and 3 misses. Companies with solid downstream demand and higher recurring revenue performed better [3]. 2. **Data Center Performance**: Companies like VNET, GDS, and Kingsoft Cloud exceeded expectations due to strong AI demand [3]. Market Data 1. **Revenue Growth**: The revenue of China's software and IT services industry grew by 12.3% YoY to Rmb8.32 trillion in the first seven months of 2025, with net profit increasing by 12.4% YoY to Rmb1.09 trillion [4]. 2. **Sector Performance**: In July 2025, the sector's revenue growth accelerated to 14.6% YoY, and net profit growth reached 13.9% YoY [4]. Investment Recommendations 1. **Top Picks**: The preferred companies in the software sector include Kingdee and Meitu for their solid growth and improving profitability. In the data center/public cloud space, VNET, GDS, and Kingsoft Cloud are favored for their strong growth driven by AI [2][9]. 2. **Price Objective Changes**: Price objectives for several companies were revised, reflecting changes in market conditions and company performance [7][11]. Employee Trends - The total number of employees in software companies under coverage declined by an average of 5% in 1H25 compared to FY24, indicating potential cost-cutting measures [13]. Margin Trends - There is an observed improvement in profitability across software and data center companies, with gross profit margins (GPM) and net profit margins (NPM) showing positive trends [14]. Conclusion The conference highlighted the robust growth potential of the software and data center industry in China, driven primarily by AI advancements. Companies with strong subscription models and operational efficiencies are positioned favorably for future growth. The overall financial performance indicates a healthy demand environment, although some segments, particularly cybersecurity, are facing challenges.

Group 1 - The Nasdaq China Golden Dragon Index increased by 2% on Wednesday, indicating a positive trend for popular Chinese concept stocks [1] - Baidu (BIDU.US) and NIO (NIU.US) both rose over 6%, reflecting strong market performance [1] - GDS Holdings (GDS.US) saw an increase of nearly 4%, while Pinduoduo (PDD.US) and New Oriental (EDU.US) both rose by 3%, showcasing a broad-based rally among these stocks [1]

Core Insights - AI is driving the demand for data centers into a "long-term essential" phase, while short-term uncertainties in chip supply may hinder market growth [1][2] - The competition in the data center industry has shifted, with rapid delivery and green energy becoming critical factors for securing orders [10][11] Data Center Demand and Supply - Data centers are considered the "digital infrastructure" of the AI era, supporting high-power servers and massive computing needs for applications like large model training and industrial internet [2] - The power density of AI servers has increased significantly, with single rack power density rising from 4-6 kW to over 20 kW, leading to a substantial increase in electricity demand [2] - Short-term supply issues with advanced AI chips, such as Nvidia's H20, may slow down new order placements, but domestic chip manufacturers are rapidly advancing to fill the gap [2] Competitive Landscape - The ability to quickly deliver capacity is becoming a "pass" for securing orders, as clients are increasingly demanding timely responses amid supply chain uncertainties [10] - Reliable and low-cost renewable energy sources are becoming a key competitive advantage for third-party data center operators in China, aligning with carbon neutrality goals and controlling operational costs [11] Technological Advancements - Liquid cooling technology is becoming standard in AI data centers due to the high heat generated by high-power density servers, with three main cooling solutions being adopted [11][12] Investment Opportunities - Preferred investment targets in the domestic data center sector include Century Internet (VNET) and GDS Holdings (GDS), due to their advantages in capacity delivery and energy acquisition [11] - The long-term value of data centers is just beginning to emerge, as they are essential for AI innovations to move beyond conceptual stages [11]

Group 1 - Kingsoft Cloud (KC.US) saw a pre-market increase of over 7%, reaching $17.2, while GDS Holdings (GDS.US) and Century Internet (VNET.US) both rose over 2% in pre-market trading [1] - Bank of America Securities reported that during a recent investor event, discussions with management from various software companies, data centers, and cloud computing firms revealed steady progress in AI monetization, with the value of AI-related contracts continuing to rise [1] - The report highlighted that AI agents and AI coding deployment are enhancing operational efficiency for software companies [1] Group 2 - In the data center and public cloud sectors, Bank of America is optimistic about GDS Holdings, Century Internet, and Kingsoft Cloud, citing strong AI demand driving performance above expectations, with all receiving a "buy" rating [1] - Goldman Sachs also indicated a preference for the gaming, transportation, cloud computing, and data center sub-sectors within the Chinese internet sector, particularly favoring Century Internet and GDS Holdings in the cloud computing and data center space [1]

Core Viewpoint - The report from Bank of America Securities highlights the robust progress in AI monetization among Chinese software companies, with increasing contract values related to AI and improvements in operational efficiency driven by AI deployment [1] Group 1: Software Companies - Companies like Kingdee International (00268) and Meitu (01357) are expected to show higher growth visibility due to their significant subscription revenue [1] - The development of AI is driving strong demand for data centers, with advancements in domestic AI chip research supporting increased orders [1] - The report favors companies with stable downstream demand and high recurring revenue, recommending Kingdee and Meitu as top picks with target prices of HKD 20.7 and HKD 13.5, respectively [1] Group 2: Data Centers and Public Cloud - In the data center and public cloud sectors, the report is optimistic about companies like GDS Holdings (09698, GDS.US), CenturyLink (VNET.US), and Kingsoft Cloud (03896, KC.US), all benefiting from strong AI demand [1] - All these companies are expected to exceed performance expectations, with a "buy" rating assigned to each [1] - The target price for Mingyuan Cloud (00909) has been raised from HKD 3.7 to HKD 4, maintaining a "neutral" rating [1]

Group 1 - The core viewpoint of the article highlights that software companies in China, such as Kingdee International, Meitu, Kingsoft Office, and Yonyou Network, are making steady progress in monetizing AI, with increasing contract values related to AI [1] - AI-driven demand is expected to significantly boost the growth of data centers, supported by advancements in domestic AI chip research, which will lead to increased orders [1] - The report favors companies with robust downstream demand and high recurring revenue, identifying Kingdee and Meitu as top picks in the software sector, both rated "Buy" with target prices of HKD 20.7 and HKD 13.5 respectively [1] Group 2 - In the data center and public cloud sectors, the report is optimistic about companies like GDS Holdings, Century Internet, and Kingsoft Cloud, all benefiting from strong AI demand, with performance exceeding expectations and rated "Buy" [1] - The target price for Mingyuan Cloud has been raised from HKD 3.7 to HKD 4, while maintaining a "Neutral" rating [1]

Core Viewpoint - Bank of America Securities reports that during a recent investor event, discussions with management from Chinese software companies and data center/cloud computing firms revealed steady progress in AI monetization and an increase in AI-related contract values [1] Group 1: Software Companies - AI agency and AI coding deployment are enhancing operational efficiency for software companies [1] - Companies like Kingdee and Meitu, which have a high proportion of subscription revenue, are expected to show greater growth visibility [1] - Bank of America Securities prefers companies with robust downstream demand and high recurring revenue, with Kingdee and Meitu being top picks, rated "Buy" with target prices of HKD 20.7 and HKD 13.5 respectively [1] Group 2: Data Centers and Cloud Services - AI development is driving strong growth in data center demand, supported by positive progress in domestic AI chip research [1] - The public cloud business is also experiencing robust growth due to AI [1] - Bank of America Securities is optimistic about companies like GDS Holdings, Century Internet, and Kingsoft Cloud, all benefiting from strong AI demand, with all performance exceeding expectations and rated "Buy" [1] - Mingyuan Cloud's target price has been raised from HKD 3.7 to HKD 4, maintaining a "Neutral" rating [1]

Group 1 - The report highlights the growth of certain industrial park companies, such as Zhangjiang Hi-Tech, which has shifted towards equity investment, resulting in significant profit increases [2] - The National Data Bureau plans to deploy data industry clusters by 2025, aiming to optimize the national data industry layout and accelerate the formation of an industrial ecosystem [2] - A total of 63 pilot projects covering 13 cities and 22 industries have been announced, focusing on exploring data circulation mechanisms [2] Group 2 - Key industrial park operators reported net profit increases: Zhangjiang Hi-Tech up 38.6%, Suzhou High-tech up 23.2%, and Shanghai Lingang up 8.4% [3] - New business models and land development have contributed to revenue growth for companies like Zhongxin Group, which saw revenue rise from 1.511 billion to 2.104 billion yuan [3] - Some companies, such as Electronic City and Huaxia Happiness, faced significant challenges, including a 144% increase in financial expenses for Donghu High-tech [3] Group 3 - Over half of the companies reported year-on-year growth in investment income, with Zhangjiang Hi-Tech's investment income rising by 336.75% to 326 million yuan [4] - Companies in the data center sector, including Ruize Technology and WanGuo Data, experienced an average revenue growth of 10.5%, with WanGuo Data's total revenue reaching 5.623 billion yuan, up 12.2% [4] - The data center sector is becoming a growth area, with companies like ProLogis and East China New Yi expanding their operations [4] Group 4 - JD Property is developing a smart computing data center project with a construction area of 140,000 square meters, supporting regional digital industry development [5] - Two public REITs focused on data centers were launched, both experiencing a 30% increase on their first trading day, indicating strong market interest [5] - The demand for computing power and data storage is increasing due to advancements in AI, making data centers a crucial part of the AI industry ecosystem [5]

Core Viewpoint - The recent announcement by the National Development and Reform Commission (NDRC) regarding the normalization of REITs application processes is expected to accelerate IPO procedures and expand the market, positively impacting companies like GDS Holdings (09698, GDS.US) and Century Internet (VNET.US) [1] Group 1: Policy Impact - The NDRC's updated notification allows newly listed REITs to apply for asset injection six months post-IPO, facilitating quicker acquisitions within the first 12 months [1] - The Chinese government is keen on rapidly increasing the scale of REITs in the stock market, which is anticipated to lead to a larger initial asset acquisition for GDS Holdings [1] Group 2: Company Outlook - Both GDS Holdings and Century Internet are viewed positively by the firm, with a preference for Century Internet due to its ongoing REIT application process [1] - Century Internet is expected to pursue private REITs concurrently to mitigate risks associated with potential delays in the public REIT process [1] Group 3: Financial Projections - The firm maintains a favorable outlook on the fundamentals of GDS Holdings and Century Internet, assigning a target price of $67.12 for GDS Holdings, reflecting a 22.7x EV/EBITDA based on the SOTP method [1]

Core Viewpoint - The article discusses the recent surge in the A-share market, particularly focusing on the structural changes and opportunities within the data center and AI sectors, driven by significant capital expenditures from major companies like Tencent and Alibaba [5][9]. Group 1: Market Movements - A-share market has seen notable movements in the computing power concept stocks, with companies like Data Port and Ronglian Technology experiencing sharp increases, including a limit-up on Ronglian Technology [3][6]. - The computing power sector is compared to the previous liquid cooling sector, indicating it is on the verge of a breakout, with significant gains observed in related stocks [6]. Group 2: Capital Expenditure Trends - Major companies are ramping up capital expenditures, with Tencent and Alibaba reporting increases of 119% and 220% respectively in Q2 this year, and Alibaba planning to invest over 100 billion yuan in AI infrastructure and products [5][9]. - The report highlights that the capital expenditure (CAPEX) for major cloud service providers like Microsoft, Amazon, and Google is expected to grow significantly, with projected CAGR of 33.74% from 2021 to 2024 [9]. Group 3: AI and Data Center Dynamics - The rapid development of AI technology is reshaping the data center industry, with increasing demand for AI-driven services expected to be the main growth driver [6][9]. - The Chinese AI cloud market is projected to reach 22.3 billion yuan by the first half of 2025, supported by favorable policies aimed at avoiding redundant construction in the industry [7]. Group 4: Policy and Industry Outlook - The "East Data West Calculation" initiative is expected to provide a clear direction for the scalable and intensive development of data centers, combining low-cost resources in the west with high market demand in the east [9]. - The "dual carbon" policy context is pushing for a transformation in data centers towards greener practices, which may lead to increased capital expenditure pressures in the short term [10].