Core Insights - Alibaba, Tencent, and JD.com reported earnings reflecting improved Chinese consumer spending and the benefits of artificial intelligence in advertising [1] Group 1: Alibaba - Alibaba's Taobao and Tmall group sales rose by 9% year on year to 101.37 billion yuan ($13.97 billion) for the three months ended March 31, exceeding the predicted 97.94 billion yuan [2] - Marketing revenue for Alibaba grew 12% year on year to nearly $10 billion, aided by the use of AI tools to enhance marketing efficiency [16] - Despite positive sales figures, Alibaba's overall profit was about half of analysts' expectations, leading to a 7.6% drop in shares during U.S. trading [17] Group 2: JD.com - JD.com reported a 16.3% increase in revenue from its retail business to 263.85 billion yuan for the three months ended March 31, surpassing the predicted 226.84 billion yuan [8] - Sales in electronics and home appliances surged by 17% year on year, supported by China's trade-in subsidies [7] - JD's marketing revenues climbed by 15.7% to 22.32 billion yuan, partly due to AI tools enhancing ad conversion rates [13][14] Group 3: Tencent - Tencent's "fintech and business services" segment saw a 5% year-on-year revenue increase to 54.9 billion yuan in the first quarter [9] - Marketing services revenue for Tencent surged by 20% to 31.9 billion yuan, driven by strong advertiser demand for short videos and content on WeChat [10] - AI advancements have improved Tencent's click-through rates for ads to nearly 3%, a significant increase from historical rates of 0.1% for banner ads and around 1% for feed ads [11] Group 4: Market Context - The earnings reports reflect a period before the escalation of U.S.-China trade tensions in April, which introduced new tariffs [4] - A Morgan Stanley survey indicated consumer confidence fell to a 2.5-year low, with 44% of respondents concerned about job losses, impacting spending expectations [18] - Analysts predict that as trade tensions ease, consumption will rise, and related stimulus policies may focus on boosting spending in various sectors [5][20]

Investment Rating - The report maintains a "BUY" rating for NetEase, indicating a potential return of over 15% over the next 12 months [19]. Core Insights - NetEase reported strong 1Q25 results with total revenue growing by 7% YoY to RMB28.8 billion, aligning with consensus estimates. Operating profit surged by 37% YoY to RMB10.4 billion, exceeding consensus by 25%, primarily due to disciplined operating expense control, which decreased by 14% YoY [1][2]. - The games business showed a reacceleration in revenue growth, increasing by 12% YoY in 1Q25, supported by a 19% YoY growth in contract liabilities, which is expected to bolster future revenue [1][7]. - The target price for NetEase has been raised to US$136.5 from the previous US$125.5, reflecting a 27.4% upside from the current price of US$107.11 [3][11]. Financial Performance Summary - **Revenue Forecasts**: The revenue for FY25 is estimated at RMB113.1 billion, with projections for FY26 and FY27 at RMB121.1 billion and RMB128.9 billion, respectively [2][8]. - **Profitability Metrics**: Adjusted net profit is expected to reach RMB40.1 billion in FY25, with a growth trajectory continuing into FY26 and FY27 [2][8]. - **Valuation Metrics**: NetEase is currently trading at a P/E ratio of 13.6x for FY25, which is in line with its two-year historical average [7][11]. Business Segment Analysis - **Online Games**: The online games segment is valued at US$121.8 billion, accounting for 89.2% of the total valuation, based on a multiple of 16x 2025E EV/EBIT, consistent with industry averages [11][12]. - **Youdao and Cloud Music**: Youdao is valued at US$0.7 billion, while the Cloud Music business is valued at US$3.8 billion, both based on industry-standard multiples [11][12]. - **Innovative Businesses**: The innovative businesses segment is valued at US$1.6 billion, reflecting a growing diversification strategy [11][12]. Market Position and Growth Drivers - The games business is expected to benefit from several highly anticipated global launches, including titles like MARVEL Mystic Mayhem and Destiny: Rising, which should further enhance revenue growth [7]. - Non-gaming segments are also improving efficiency, with a notable increase in gross profit margin for the Cloud Music segment despite a decline in revenue [7][8]. Share Performance - The market capitalization of NetEase stands at approximately US$67.99 billion, with a 52-week high of US$109.80 and a low of US$76.28 [3][4]. - Over the past month, the stock has seen an absolute increase of 9.3% [4].

Core Insights - Alibaba's shares declined by 4% in premarket trading after missing earnings expectations for its fiscal fourth quarter, with revenue up 7% year-on-year but below analyst estimates [1][6] Financial Performance - Revenue for the fiscal fourth quarter was 236.5 billion Chinese yuan ($32.6 billion), slightly below the expected 237.2 billion yuan [6] - Net income was reported at 12.4 billion yuan, significantly lower than the expected 24.7 billion yuan [6] Market Conditions - Investors are concerned about the impact of macroeconomic volatility on consumer sentiment in China, particularly due to the ongoing trade tensions between Washington and Beijing [2] - Recent agreements to suspend most tariffs on goods between the U.S. and China may influence market conditions [2] Strategic Initiatives - Alibaba has extended its partnership with Rednote (Xiaohongshu) to enhance shopping experiences on its Tmall and Taobao platforms by embedding product links in posts [3] - The company is focusing on advancements in artificial intelligence, launching the Qwen 3 large language model to power its AI assistant Quark [4] Competitive Landscape - The AI sector in China is highly competitive, with notable investments from other tech giants like Tencent, which reported a 91% year-on-year increase in capital expenditures driven by AI investments [4]

Summary of the Conference Call on China's AI Development Industry Overview - **Industry**: Artificial Intelligence (AI) in China - **Focus**: The development and implications of AI technology in China, including its impact on various sectors and the economy as a whole Key Points and Arguments AI Development Strategy - China is pursuing a top-down approach to align strategy, ecosystem, standards, and industry-specific innovation to unlock AI's potential, supported by a robust infrastructure [1][10] - The country is developing cutting-edge AI capabilities with less hardware, focusing on efficiency rather than just high-performance models [9][11] Economic Implications - AI is expected to boost China's long-term GDP growth by addressing structural challenges such as aging demographics and slowing productivity [20][51] - The AI capex boom is projected to contribute modestly to GDP growth (0.2-0.3 percentage points annually) in the near term [20][51] Investment Opportunities - Morgan Stanley's "China AI 60" identifies leading companies in AI adoption and innovation, highlighting a shift in value from AI hardware to applications [12][48] - Companies with proprietary data are expected to achieve outsized returns, especially those that can build efficient AI services [12][31] Competitive Landscape - The AI landscape in China is becoming more competitive, with companies like DeepSeek prompting others to reduce usage prices and integrate AI into their operations [11][19] - China has the most developers of large language models (LLMs) outside of the US, with a vibrant ecosystem driven by private sector innovation [66][77] Regulatory and Market Challenges - US restrictions on advanced computing resources are a near-term headwind, but Chinese companies are focusing on developing more efficient AI technologies [11][38] - The regulatory approach in China balances fostering innovation while ensuring control, which is crucial for the AI value chain [10][46] Social and Labor Market Impact - The AI revolution may lead to significant labor displacement, necessitating stronger social safety nets and support for AI-oriented education and training [21][59] - AI's impact on labor is expected to be broad and deep, affecting various skill levels and industries [21][57] Future Outlook - By 2030, China aims to achieve global leadership in AI, with a focus on integrating AI into key manufacturing and consumer sectors [46][74] - The AI ecosystem is expected to continue evolving, with significant advancements in applications across various industries [70][77] Additional Important Insights - China's AI strategy is intertwined with its broader economic and industrial strategies, aiming for self-reliance and improvement [71][74] - The country is positioned to influence global tech policies and standards as it advances in AI technology [47][76] - The AI industry in China was valued at over US$3.2 billion as of 2024, with a strong emphasis on efficiency and application [77][78] This summary encapsulates the critical insights from the conference call regarding China's AI development, its implications for the economy, investment opportunities, and the competitive landscape.

M BluePaper May 13, 2025 09:00 PM GMT Global Technology China – AI: The Sleeping Giant Awakens China is focused on how AI can drive industrial transformation at scale and turn constraints into opportunities. A top-down approach, aligning strategy, ecosystem, standards and industry-specific innovation to an already robust infrastructure, is helping unlock AI's potential in China. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be a ...

Investment Rating - The report maintains a "Buy" rating for Tencent, Alibaba, PDD, and Meituan, indicating positive expectations for their performance in the upcoming quarters [6][9][10][11]. Core Insights - The report anticipates strong 1Q results for major players like Tencent, Alibaba, and JD, driven by sustained consumer spending and growth in advertising and cloud services [1][2]. - Key investor focuses include the competitive landscape in food delivery, AI capital expenditures, and geopolitical developments affecting cross-border business models [2][11]. Summary by Company Tencent - Expected 1Q advertising revenue growth of +18% and overall group revenue growth of +10% year-over-year [1][12]. - Focus areas include AI-driven adtech upgrades, sustainability of gaming revenue, and implications of recent policy changes on WeChat payment trends [7][12]. Alibaba - Anticipated 1Q Customer Management Revenue (CMR) growth of +9% and group EBIT growth of +12% year-over-year [1][13]. - Key focuses include Alibaba Cloud's revenue growth driven by AI demand, competitive landscape in eCommerce, and implications of new foreign chip restrictions [7][13]. JD - Expected 1Q Retail revenue growth of +28% year-over-year, with a focus on the impact of JD's entry into food delivery on overall profitability [11][12]. - Key discussions revolve around updated profit guidance for FY25 and strategies to maintain user engagement in food delivery [11][12]. PDD - Anticipated solid growth in core local commerce profits, with a focus on the implications of Temu's business model changes and competitive dynamics in the eCommerce space [10][14]. - Key focuses include GMV growth drivers and the impact of geopolitical policies on business operations [10][14]. Meituan - Expected 1Q revenue growth of +17% year-over-year, with a focus on maintaining leadership in food delivery amidst increased competition [10][16]. - Key discussions include the sustainability of core local commerce profits and the impact of new initiatives on overall profitability [10][16].

Investment Rating - The report indicates a constructive outlook on China's economic recovery, with institutional investors adding cyclical risks and cutting defensive names during Q1 2025 [4][32]. Core Insights - Institutional investors, including domestic mutual funds and northbound funds, have shown a preference for sectors such as technology, healthcare, and financials, while also responding to trade tensions by increasing allocations to self-sufficient tech names [2][12][25]. - The national team has invested significantly in the AI value chain and new energy sectors, while individual investors remain the largest participants in the A-share market [5][39]. - Southbound fund inflows reached record levels, with estimates suggesting further inflows could total approximately RMB300 billion by the end of 2025 [6][11]. Summary by Sections Trade Tensions and Institutional Actions - Institutional investors took pre-emptive actions in response to trade tensions, increasing their positions in tech self-sufficient names by 1.3 percentage points for domestic mutual funds and 0.8 percentage points for northbound funds during Q1 2025 [12][2]. - Both groups of investors maintained over 20% allocation to "going global" names, indicating a positive long-term outlook despite recent reductions [13][2]. Divergence in Investment Preferences - Domestic mutual funds were more optimistic about food & beverage and healthcare sectors, while northbound funds favored banks with stable asset quality [3][25]. - In the electronics industry, domestic mutual funds focused on supply chain localization, whereas northbound funds preferred computing hardware names [26][25]. Economic Outlook - China's economy showed strong growth in Q1 2025, with a real GDP growth rate of 5.4% and positive retail sales growth [32]. - Both domestic and northbound funds increased exposure to pro-cyclical industries, reflecting confidence in economic recovery [32][33]. National Team and Market Participation - The national team holds RMB4.0 trillion in A-share stocks and RMB1.0 trillion in stock ETFs, accounting for 6.4% of the A-share floatable market cap [39][44]. - Financials dominate the national team's holdings, comprising 85.3% of their portfolio [45][39]. Southbound Fund Flows - Southbound net inflows reached RMB410.5 billion in Q1 2025, with mutual funds contributing approximately 16% and insurance funds about 25% [6][51]. - The report estimates that mutual funds' holdings in HK-listed stocks increased by 26.7% during Q1 2025, reflecting strong market performance [52][53].

Investment Rating - The report maintains an "In-Line" view on the industrial sector in China, indicating a balanced outlook on investment opportunities [9]. Core Insights - The report emphasizes the structural competitive advantages that China possesses in emerging sectors, despite facing challenges such as debt, deflation, and demographic shifts [3][8]. - A six-factor framework is introduced to analyze the successful ingredients driving industrial upgrades and to identify future investment opportunities [1][31]. Summary by Sections Industrial Upgrade Focus - China's industrial upgrades are driven by significant opportunities in advanced supply chains and manufacturing sectors, with a focus on machinery, vehicles, new energy, semiconductors, aerospace, AI, software, pharmaceuticals, humanoid robots, and eVOTL [4][5]. - The report identifies 28 stocks that are well-positioned to benefit from these trends, either through supply chain advantages or as key players in new industries [5][49]. Six-Factor Framework 1. **R&D Investment**: R&D spending in China is critical for industrial upgrades, with manufacturing accounting for 60% of total R&D as of 2023. The report notes that while China's R&D as a percentage of GDP is around 2.7%, it is improving [15][35][56]. 2. **Talent Pool**: China has the largest number of engineering graduates globally, with approximately 3 million students graduating in 2022, which supports innovation in emerging industries [37][38]. 3. **Capital Inflows**: Significant capital inflows have been observed, particularly in semiconductors and machinery, with Rmb20 trillion in capital recorded from 2021 to 2024 [39]. 4. **Government Support**: The Chinese government provides substantial support through subsidies, tax incentives, and regulatory frameworks, particularly in new energy, semiconductors, and aerospace [39][40]. 5. **Market Demand**: Strong market demand drives operational efficiencies and encourages companies to invest in R&D and advanced technologies, with consumer discretionary and healthcare sectors expected to grow [40][41]. 6. **Supply Chain Foundations**: The report highlights the importance of moving up the value chain, particularly in industries like semiconductors and machinery, to enhance margins and localization rates [41][43]. Investment Opportunities - The report identifies key industries poised for growth, including semiconductors, aerospace, AI, and pharmaceuticals, and emphasizes the importance of monitoring emerging start-ups [3][34][49]. - AI is highlighted as a significant opportunity, with projections indicating it could contribute Rmb11 trillion to China's GDP by 2035 [45][46]. Stock Recommendations - The report provides a detailed playbook of 28 stocks that are strategically positioned to capitalize on the industrial upgrade theme, spanning various sectors including technology, industrials, and materials [50][51].

Investment Rating - The report maintains a cautious view on the technology sector, particularly on software and IT services, while highlighting structural growth opportunities in AI and semiconductors [26][31][44]. Core Insights - CIOs' IT budget growth expectations for 2025 have decreased to 5.8%, down 140 basis points from 2H24, with significant downward revisions anticipated in software and hardware spending [8][44]. - AI/ML/PA remains the top priority for CIOs, with 71% expecting AI/LLM projects to enhance IT investments in 2025, reflecting a 19 percentage point increase from 2H24 [53][70]. - The share of AI/LLM in total IT spending is projected to rise to 11.2% in 2025, up from 10% in 2H24, indicating a growing focus on AI-related investments [65][70]. Summary by Sections IT Budget Expectations - CIOs' average IT budget growth expectations fell to 5.8% for 2025, with a notable decline post-US tariff announcements, where expectations dropped from 6% to 2% [8][11][44]. - The survey indicates that 43% of CIOs foresee further downward revisions to their budgets following the tariffs, compared to 31% prior to the announcement [15][44]. AI and Technology Trends - AI/ML/PA has overtaken digital transformation as the most defensive area of IT spending, with significant increases in spending expectations [64][69]. - The report highlights that 34% of companies have initiated AI/LLM projects, with 39% expecting to have projects in production by 2025 [54][61]. Sector-Specific Insights - Software and IT services are expected to see the largest budget cuts, while semiconductors are anticipated to experience structural growth driven by AI, despite a delayed cyclical recovery [26][31][44]. - The hardware sector is expected to face reduced spending, particularly in PCs, while AI server hardware is projected to benefit from increased demand [33][37][70]. Preferred Companies - The report identifies several preferred companies within the AI and semiconductor sectors, including TSMC, MediaTek, and Beisen, which are expected to benefit from the ongoing AI trend [31][70][72]. - Caution is advised for companies with significant exposure to traditional tech and enterprise software, as macroeconomic uncertainties may hinder recovery [26][31][44].

在企业、资本和政府的大力支持下，人形机器人行业正在迅 速发展。我们预计到2050年全球市场规模将达到5万亿美元， 在本报告中，我们探讨了产业链上的最佳商业模式和投资机 会。 要点 全球人形机器人潜在市场规模 – 到2050年将达到5 万亿美元：我们的美国研究团队建立了摩根士丹利 的全球人形机器人TAM模型，该模型预测全球人形 机器人市场将超过全球汽车行业。我们预计到2050 年全球人形机器人销售额将达到 4.7 万亿美元，大 概是全球 20 家最大汽车厂商 2024 年总收入的两 倍，而这一数字在未来25年内很可能会大幅减少。 April 30, 2025 06:46 AM GMT 人形机器人 价值5万亿美元的全球市场 This translated report is made available for convenience only and is excerpted from the original research report published in English. In the event of any discrepancy between the translation and the ...