Seek .(US:SKLTY)2025-02-16 11:57Investment Rating - The report maintains a "Buy" rating for several AI-related stocks in China, particularly in the semiconductor, software, and internet sectors [15]. Core Insights - The launch of DeepSeek's R1 model has reignited interest in AI development among investors, with AI-related stocks in China rising 15% since the start of the year, outperforming MSCI China by 9% [3]. - Historical trends from previous technology cycles (4G, 5G, Cloud computing) suggest that AI-related stocks could see significant valuation re-ratings, with potential price increases of 50-100% over the next 1-2 years [4][29]. - A-shares are viewed as a better option for exposure to AI-related themes compared to HK-listed names, given their higher representation of hardware and software stocks [4]. Summary by Sections AI Market Performance - AI-related stocks have shown a 15% increase since the beginning of the year, outperforming the broader MSCI China index by 9% [3]. - The report notes that technology stocks contribute 12-20% to the index, with A-shares historically benefiting more from thematic trends than HK-listed stocks [3]. Historical Context and Future Outlook - The report draws parallels with past technology cycles, indicating that the current AI rally may be less than halfway through, particularly for software companies [4][29]. - The report highlights that during previous technology booms, such as 4G and 5G, the MSCI China index rose by an average of 50%, while the CSI300 index rose by 72% [4]. Sector Preferences - The report identifies infrastructure providers and hardware manufacturers as likely to see early revenue benefits from AI adoption, while software companies are expected to experience more significant valuation upside [5]. - The report emphasizes that software companies have seen the most re-rating, with their price-to-sales ratios increasing by 4-14 points during previous technology cycles [5][47]. Thematic Trading - The report suggests that thematic trading will be a key feature of the equity market this year, driven by the uncertain nature of AI applications and supportive monetary policy [10]. - A-share TMT (Technology, Media, and Telecommunications) stocks, particularly in software, are highlighted as the most leveraged way to participate in AI-related themes [10]. Selected Stocks and Recommendations - The report lists several top picks under the AI thematics, including JCET Group, Will Semiconductor, and various financial and healthcare companies, all rated as "Buy" [15]. - The report also notes that internet companies are expected to benefit in the long term from cheaper AI models and attractive valuations [10]. Valuation Insights - The report indicates that AI-related stocks are currently trading at levels comparable to 2023 but remain below their 2021 peaks, suggesting potential for future growth [19][20]. - The MSCI China price target has been increased by 5% to $73, reflecting the anticipated uplift in valuations due to AI [59].