Investment Rating - The report maintains an "Outperform" rating for the communication industry [1]. Core Insights - The upgrade of AI cluster network architecture is driving demand for optical modules, switches, network cards, and fiber optic cables due to the need for enhanced backend networking to support increased east-west traffic [2][12]. - The upcoming release of NVIDIA's GB300 is expected to significantly boost the demand for 1.6T optical modules, as the new architecture requires a higher number of upgraded optical modules compared to its predecessor [2][67]. - The trend towards self-developed ASICs by major players like Google, AWS, Meta, and Microsoft is anticipated to further increase the demand for optical modules and AEC connections [2][69]. Summary by Sections AI Cluster Network Architecture Upgrade - Traditional network architectures are inadequate for AI computing, primarily due to high latency and bandwidth limitations [11][12]. - The AI network architecture necessitates the addition of backend networks, which increases the demand for switches and optical modules [12][34]. NVIDIA H100 and NVL72 Cluster Network Architecture - The report details the network architecture for NVIDIA's H100 and NVL72 clusters, highlighting the differences in optical module requirements between the GB200 and GB300 models [47][66]. - The GB300 model requires a significant number of 1.6T dual-port optical modules, reflecting a shift in optical module demand as network speeds increase [67][68]. North American Leading CSP Network Architecture - The report discusses the network architecture of leading cloud service providers in North America, emphasizing the importance of efficient interconnectivity and the role of optical modules in supporting large-scale AI operations [74][78]. Investment Recommendations - The report recommends leading companies in the optical device and module sector, such as Zhongji Xuchuang, Xinyi Technology, and Tianfu Communication, while also suggesting attention to companies like Huilv Ecology and Zhaolong Interconnect in the high-speed copper cable segment [2][113].

Investment Rating - The industry rating is "Overweight" with a maintained rating from the previous assessment [4][17] Core Insights - In Q2 2025, the proportion of communication heavyweights in fund holdings increased to 5.3%, up by 2.4 percentage points from the previous quarter, ranking 6th among 31 industries [1][4] - The total market value of funds heavily invested in the communication sector reached 708.8 billion yuan, accounting for 5.3% of the total market value of A-share holdings, with a significant preference for optical devices and modules, communication components, IoT, connectors, cables, and operators [1][2] - The concentration of holdings in the top ten communication stocks increased significantly, with their market value accounting for 64.6% of the total communication sector holdings, up by 16.3 percentage points from the previous quarter [2][13] Summary by Sections Fund Holdings Analysis - The total market value of funds heavily invested in the communication sector was 1166.7 billion yuan, representing 8.7% of the total A-share holdings [1] - The top five stocks with increased holdings were Zhongji Xuchuang (139.90 billion yuan), Xinyi Sheng (128.93 billion yuan), Huhua Electronics (84.55 billion yuan), Tianfu Communication (29.11 billion yuan), and Yuanjie Technology (16.49 billion yuan) [3][15] - The top five stocks with decreased holdings included Dalian Technology (-16.66 billion yuan), ZTE Corporation (-12.80 billion yuan), Hengtong Optic-electric (-12.73 billion yuan), Runze Technology (-12.49 billion yuan), and Guanghuan New Network (-11.46 billion yuan) [3][15] Stock Performance - The communication sector outperformed the CSI 300 index over various time frames, with returns of 11.82% over one month, 27.66% over three months, and 54.32% over twelve months [6]

Core Conclusions - The communication industry is experiencing a dual increase in performance and valuation within the computing power sector, which remains the most certain direction for investment [1][5][9]. Communication Industry Insights - The communication sector outperformed the broader market, with a weekly increase of 7.56%, ranking first among 31 industries [5]. - Key stocks such as NewEase and Zhongji Xuchuang reported impressive half-year earnings forecasts, driven by significant growth in AI demand [5][8]. - The sub-sectors showing the highest gains include optical devices and modules (+9.59%), temperature control equipment (+8.59%), and power equipment (+8.25%) [6]. Investment Strategy - Focus on companies with high growth certainty in the computing power sector, particularly in optical modules and copper interconnects [9]. - The performance of major computing power companies indicates a sustained high demand for AI computing resources, with significant investments expected in data centers and computing leasing [9][10]. - The report emphasizes the importance of self-sufficiency in the computing power supply chain, highlighting the expansion of the Ascend industry chain and its positive impact on related companies [9]. Market Trends - The upcoming earnings reports are crucial for assessing the valuation alignment and performance of high-growth sectors [3][19]. - The North Exchange market is expected to maintain structural activity driven by policy support and industrial upgrades, although individual stock differentiation and external economic disturbances remain risks [19][23]. Fixed Income Insights - The first batch of 10 sci-tech bond ETFs has seen rapid growth, with total assets exceeding 88 billion yuan, indicating high trading activity [13][14]. - The current yield spreads for these ETFs are at historically low levels, suggesting limited room for further compression [14][15]. Key News and Developments - Meta is building the "Prometheus" AI supercomputing cluster, expected to reach 1GW of computing power by 2026, while Google DeepMind has introduced a new architecture that significantly enhances processing speed [8][9]. - The establishment of the China Yajiang Group marks a significant development in the industry, reflecting ongoing governmental support for technological innovation [18].

Summary of Conference Call Notes Industry Overview - The conference call primarily discusses the **communication industry** and its response to recent changes in **U.S. tariff policies** affecting various products including optical modules, wireless communication modules, and IP phones [3][4]. Key Points and Arguments 1. **U.S. Tariff Exemption Impact**: - The recent U.S. tariff exemption list includes products related to the communication industry, allowing companies to revert to a 27.5% tariff level, with potential for zero tariffs if products are routed through Thailand [3][4]. - This exemption significantly reduces tariff costs for related companies, providing a favorable environment for growth [4]. 2. **Domestic Semiconductor Certification Rules**: - New domestic semiconductor product origin certification rules mainly affect IDM model analog chip manufacturers, but the overall impact on the communication industry is considered limited [5]. 3. **NVIDIA Export Policy**: - The Trump administration's slowdown in restricting NVIDIA H20 exports to China is seen as beneficial for domestic HH20 server manufacturers and downstream companies, promoting capital expenditure and investment certainty [6]. 4. **Optical Device and Module Sector**: - Leading companies like Zhongtian Technology benefit from tariff exemptions, while companies like Xuchuang are relocating high-end production to Thailand to mitigate risks associated with direct exports to the U.S. [7]. - The core chips used in optical modules are primarily sourced from Taiwan, limiting the impact of import tariffs [7]. 5. **Wireless Communication Module Sector**: - Companies such as Guanghetong, Yiyuan Communication, and Meige Intelligent benefit from the tariff exemptions, with most of their imported chips sourced from regions outside the U.S., resulting in minimal cost increases [8]. 6. **Enterprise Communication Terminal Sector**: - Companies like Yidian Network, which have around 30-40% of their products on the exemption list, are gradually shifting production to Southeast Asia and sharing costs with downstream distributors to mitigate tariff impacts [9]. 7. **Short-term Tariff Impact Mitigation**: - Companies have been building inventory in overseas warehouses to buffer against short-term tariff impacts and are increasing the pace of domestic chip substitution [10]. 8. **Data Center Temperature Control Market**: - The majority of revenue in this segment still comes from domestic markets, with limited impact from tariffs due to low cost contribution from risk control measures [11][12]. 9. **Smart Controller Sector**: - Major manufacturers have established global production bases to buffer against tariff impacts, with direct exports to the U.S. being minimal [13]. 10. **Communication Industry Performance**: - The domestic demand sector is performing well, while export-oriented sectors like optical devices and modules are facing significant challenges, with some companies experiencing over a 15% decline in stock prices [14]. 11. **Future Demand for Optical Modules**: - Expectations for 2025 and 2026 indicate a higher demand for 1.6T optical modules, with potential growth driven by Ethernet customers and cloud computing applications [15]. 12. **Investment Strategy for the Communication Industry**: - Short-term impacts from tariffs are expected to be minimal, with a focus on individual demand changes and Southeast Asian policy developments. Recommended stocks include Zhongji Xuchuang, Yiseng, Tianfu Communication, and others [16][17]. Additional Important Insights - The communication industry is advised to focus on segments benefiting from tariff exemptions, such as optical modules and IoT modules, while also considering sectors with low overseas demand impact [17]. - There is a notable emphasis on accelerating domestic substitution of communication chips in response to import tariff impacts [17].