Seek .(US:SKLTY)2025-02-14 01:54Investment Rating - The report maintains a "Buy" rating for several AI-related stocks, particularly in the semiconductor, software, and healthcare sectors [11]. Core Insights - The launch of DeepSeek's R1 model has reignited interest in AI development in China, with AI-related stocks rising 15% since the start of the year, outperforming MSCI China by 9% [1][2]. - Historical trends from the 4G, 5G, and cloud computing eras suggest that AI-related stocks could see a valuation uplift of 50-100% over the next 1-2 years, indicating that the current rally is less than halfway through [1][27]. - 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 [2]. Summary by Sections AI Sector Performance - AI contributes a limited proportion of revenue for most companies, and competition may restrict earnings growth in the short term [1]. - The report highlights that technology-driven rallies often see share prices rise ahead of earnings, supported by ample liquidity and lower interest rates [1]. Historical Context - The report references past performance during the 4G and 5G rallies, where MSCI China rose by an average of 50% and CSI300 by 72% from trough to peak [2]. - A-shares are more heavily exposed to hardware and software names, with approximately 20% representation, compared to 12% for HK [2]. 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 significant valuation upside [3]. - Software companies have seen their price-to-sales ratios increase by 4-14 points during previous tech cycles, indicating strong potential for re-rating [3][46]. Thematic Trading - The report suggests that thematic trading will be a key feature in the equity market this year, driven by the uncertain nature of AI applications and supportive monetary policy [7]. - A-share TMT, particularly software, is highlighted as the most leveraged way to participate in AI themes [7]. Selected Stocks - The report lists top picks under AI thematics, including JCET Group, Will Semiconductor, and NAURA Technology Group, all rated as "Buy" [11]. - Other notable mentions include healthcare companies like Yifeng Pharmacy Chain and Ping An Insurance, also rated as "Buy" [11]. Market Outlook - The MSCI China price target has been increased by 5% to $73, reflecting the anticipated uplift in valuations due to AI [61]. - The report emphasizes that while AI products currently contribute less than 1% to revenue for software companies, this is expected to grow as projects move from proof-of-concept to full deployment [72].