China Securities·2025-05-18 16:20Investment Rating - The report maintains a positive outlook on the gaming and advertising sectors, particularly highlighting Tencent's performance and potential in the AI-driven advertising space [6][12][37]. Core Insights - The gaming sector is expected to see continued growth, with Tencent's long-standing games achieving record revenues and new titles anticipated to perform well [8][10][12]. - AI applications are driving significant improvements in advertising effectiveness, with click-through rates increasing and revenue growth observed in various segments [11][27][37]. - The report emphasizes the unique ecosystem of WeChat's Agent capabilities, which integrates social graphs and a vast array of mini-programs, enhancing user engagement and service delivery [10][38]. Summary by Sections AI Developments - ByteDance has released updates to its multimodal models, enhancing performance and reducing costs, which is expected to accelerate commercial adoption [3]. - New AI agents focused on specific industries, such as Lovart.ai for design and Tencent's CodeBuddy for programming, have been launched, showcasing the integration of AI with industry-specific knowledge [3][44]. Company Performance - Tencent reported Q1 2025 revenues of 1800.2 billion, a 13% year-on-year increase, driven by strong performance in gaming and advertising [6][12]. - NetEase's Q1 2025 revenue reached 288 billion, with a 7.4% year-on-year growth, primarily from its gaming segment [12][13]. Gaming Sector Insights - Tencent's long-standing games, such as "Honor of Kings" and "Crossfire," have achieved record revenues, with expectations for continued growth in 2025 [8][10]. - New game launches are anticipated to contribute significantly to revenue, with titles like "Victory Goddess" and "Yanyun Sixteen Sounds" expected to perform well [21][22]. Advertising Trends - AI-driven advertising is showing promising results, with a 20% year-on-year increase in advertising revenue for Tencent in Q1 2025 [11][27]. - The integration of AI in advertising strategies is enhancing targeting and effectiveness, leading to improved revenue streams [27][37]. Market Dynamics - The report highlights the competitive landscape in the AI sector, with various companies launching new AI products and services, indicating a robust growth trajectory [41][44]. - The gaming industry is experiencing a surge in new product launches, with several companies expected to release new titles in May 2025 [21][22].