Goldman Sachs·2025-07-16 15:25Investment Rating - The report maintains a "Buy" rating on PDD, indicating favorable risk-reward dynamics due to its non-participation in the food delivery competition and potential growth from new user traffic and general merchandise strength [10]. Core Insights - The report highlights a potential resumption of Nvidia H20 chip supply, which could positively impact China's cloud service providers' capital expenditures starting from Q3 2025, with an expected 44% quarter-over-quarter increase in aggregate capex [1]. - There is a notable increase in generative AI adoption among Chinese enterprises, with over 40% having pilot-tested generative AI tools, up from 8% last year [1]. - The performance gap between US and Chinese AI models is narrowing, with new releases from various internet platforms and AI startups [1]. - The report emphasizes steady progress in monetization of AI applications, with Chinese models achieving scalable annual recurring revenue (ARR) for their AI products [1]. Summary by Sections AI Application Trends - China's top AI applications showed healthy user engagement trends in June, with a 6% month-over-month increase in domestic AIGC application engagement, driven by strong growth in Doubao and DeepSeek [8][10]. - The overall time spent on the top 400 mobile apps increased by 7% year-over-year in June 2025, with significant growth in eCommerce and social engagement [7][10]. Capital Expenditure Forecasts - The report forecasts a drop in combined capex from China CSPs in Q2 2025, followed by gradual improvement in Q3 and Q4 2025, driven by the resumption of Nvidia shipments and domestic chip ramp-up [15]. Monetization and Revenue Growth - The ARR of various AI operations in Chinese companies shows significant figures, with Kuaishou's Kling AI expected to reach over US$400 million in total annual revenue by 2027 [20][21]. - The report notes that subscription-based productivity tools and advertising-based AI search engines are contributing to the monetization of AI applications [1]. Competitive Landscape - Competition in video-generative models is intensifying, with Kuaishou's Kling AI projected to achieve substantial revenue growth, alongside other models from ByteDance and Alibaba [1][6]. - The report highlights the increasing capabilities of Chinese AI models, which are closing the performance gap with US counterparts [33][34].