Core Insights - The communication equipment industry experienced a revenue growth of 12.7% year-on-year in Q2 2025, indicating a recovery that began in Q4 2023, with AI computing power emerging as a new growth engine [1][2] - The net profit for the communication equipment sector grew by 19.0% year-on-year in Q2 2025, reflecting strong profitability amid the transition of growth drivers [1][2] Financial Summary and Outlook - The overall revenue for communication equipment in Q2 2025 increased by 12.7% year-on-year, with growth accelerating from Q4 2023 to Q3 2024, indicating a successful transition between old and new growth drivers [2] - The net profit attributable to the parent company in Q2 2025 rose by 19.0% year-on-year, showing consistent growth in Q1 and Q2 2025 after a decline in Q4 2024 [2] Key Industry Segments to Watch - The optical device segment saw a remarkable revenue growth of 72.81% year-on-year in Q2 2025, with net profit growth of 133.5%, driven by increased global demand for AI and optical modules [3] - The Internet of Things (IoT) sector continued to show good revenue growth in Q2 2025, confirming the ongoing recovery trend, with companies benefiting from the long-term trend of interconnected devices [3] - The fiber optic cable sub-sector reported a revenue increase of 16.5% year-on-year in Q2 2025, although net profit declined by 9.6% [4] - The main equipment sector reversed its downward trend in Q1 and Q2 2025, driven by strong demand for computing power, despite challenges in operator capital expenditures [5] - The satellite industry generated revenue of 1.12 billion yuan in Q2 2025, down 17.0% year-on-year, but is expected to enter a phase of regular launches following the establishment of satellite internet [5] - The Beidou and military communication sectors reported revenue of 5.31 billion yuan in Q2 2025, a decline of 7.1% year-on-year, but are anticipated to recover with new equipment entering service [5] Investment Recommendations - The company suggests focusing on investment opportunities in "AI + overseas expansion + satellite" sectors, particularly in optical modules and devices, as well as domestic computing power lines [6] - Key recommendations include companies in the optical device sector such as Zhongji Xuchuang and Tianfu Communication, and in the server and switch PCB sectors like Huadian Co. and ZTE [7] - The report highlights the potential of the satellite internet industry and encourages monitoring developments in this area [6][10]

Core Viewpoint - The overseas computing power industry chain remains highly prosperous and is not impacted by DeepSeek and trade frictions, with stronger fundamental resonance in the related industry chain [1] Group 1: AI Industry Outlook - The AI industry is viewed as a key investment theme for the year, with expectations for significant developments in domestic AI infrastructure and applications by 2025 [1] - Continuous progress is noted in both China and the US AI sectors, particularly in inference capabilities [1] - The report emphasizes the importance of monitoring AI industry dynamics and investment opportunities in AI applications [1] Group 2: Domestic and Overseas Opportunities - The government work report has included "deep-sea technology" for the first time, indicating a positive trend for the deep-sea cable industry starting in 2025 [1] - There is a strong recommendation to focus on core investment opportunities in "AI + overseas expansion + satellites," particularly in overseas AI sectors such as optical modules, liquid cooling, and domestic computing power lines like servers and switches [1] - The domestic industry is experiencing a recovery, while overseas expansion presents good opportunities, with a focus on leading companies in the submarine cable sector [1] Group 3: Satellite Internet Industry - Recent developments in the domestic satellite internet industry are noted, with optimism for future growth driven by industry catalysts [1]

Investment Rating - Industry Rating: Outperform the market (maintained rating) [7] Core Insights - The average daily Token consumption in China has surged to over 30 trillion, reflecting rapid growth in AI application scale [1][12] - OpenAI plans to invest trillions in data center construction, indicating strong demand for computing power [2][15] - The AI computing sector is a key investment theme, with expectations for continued high demand and growth in related industries [3][29] Summary by Sections Artificial Intelligence and Digital Economy - Key recommendations include: - Optical modules & devices: Focus on companies like Zhongji Xuchuang, Xinyi Sheng, Tianfu Communication, and Yuanjie Technology [5][32] - Switches and server PCBs: Recommended companies include Hudian Co., ZTE, and Unisplendour [5][32] - Low valuation, high dividend companies: China Mobile, China Telecom, and China Unicom are highlighted for resource revaluation [5][32] - AIDC & cooling solutions: Key recommendations include Yingweike and Runze Technology [5][32] - AIGC applications: Focus on companies like Guohua Communication and Megmeet [5][32] Offshore Wind and Submarine Cables - Key recommendations for submarine cables include Hengtong Optic-Electric, Zhongtian Technology, and Dongfang Cable [6][33] - Companies with strong potential in overseas markets include Huace Navigation and Weisheng Information [6][33] Satellite Internet and Low Altitude Economy - The acceleration of low-orbit satellite development and low-altitude economy is emphasized, with key recommendations for Huace Navigation and Haige Communication [6][35] - Companies to watch include Chengchang Technology and Zhenlei Technology [6][35] Market Performance - The communication sector rose by 7.11% during the week, outperforming the CSI 300 index by 4.74 percentage points [36] - Notable gainers include Hengbao Co. and Guangku Technology, while significant decliners include ST Gaohong and Hengxin Dongfang [37][38]

Investment Rating - The industry rating is maintained at "Outperform the Market" [5] Core Viewpoints - The AI industry is viewed as the main investment theme for the year, with expectations for continued high prosperity in the AI sector and the AIDC industry chain [3][25] - The report highlights the potential for 2025 to be a pivotal year for domestic AI infrastructure competition and application development [3][25] - There is a strong recommendation to focus on investment opportunities in AI applications and related dynamics [3][25] Summary by Sections 1. Artificial Intelligence and Digital Economy - Key recommendations include: - Optical modules & optical devices: Focus on companies like Zhongji Xuchuang, Xinyi Sheng, Tianfu Communication, and Yuanjie Technology [4][28] - Switch server PCBs: Recommended companies include Hudian Co., ZTE, and Unisplendour [4][28] - Low valuation, high dividend companies: China Mobile, China Telecom, and China Unicom are highlighted for resource revaluation [4][28] - AIDC & cooling: Key recommendations include Yingweike and Runze Technology [4][28] - AIGC applications/edge computing: Focus on companies like Guohua Communication and Meige Intelligent [4][28] 2. Marine Wind and Cable & Intelligent Driving - Marine wind cable: Recommended companies include Hengtong Optic-Electric, Zhongtian Technology, and Oriental Cable [5][29] - Recovery in overseas markets: Key recommendations include Huace Navigation and Weisheng Information [5][29] - Intelligent driving: Suggested focus on modules & terminals, sensors, and connectors [5][29] 3. Satellite Internet & Low Altitude Economy - Accelerated development in low-orbit satellites and low-altitude economy: Recommended companies include Huace Navigation and Haige Communication [5][30] 4. Recent Industry Dynamics - NVIDIA reported a first-quarter revenue of $44.1 billion, a 12% increase from the previous quarter and a 69% increase year-over-year [2][16] - The report notes the expected revenue for the second quarter of 2026 to reach $45 billion, reflecting a significant impact from recent export control policies [2][16] - The AI industry continues to see advancements, with companies like OpenAI expanding their global presence [10][11]