Core Insights - UBS reports that from early 2025 to now, the China Internet ETF (KWEB) has risen by 37%, with a 5% increase in the current quarter, but earnings expectations have been downgraded by 19%, primarily due to e-commerce investments in instant retail [1] Group 1: Market Sentiment and Valuation - Favorable market sentiment has driven valuation multiples higher, with major internet companies' valuation multiples expanding by approximately 58% to around 17 times the 2025E adjusted P/E ratio, while the U.S. "Tech Seven" has a valuation of about 31 times [2] - Small and mid-cap vertical companies continue to outperform as investors avoid competition pressures among e-commerce giants, with emotional consumption scenarios like online gaming and music showing strong performance [2] - Low-allocated stocks have seen significant rebounds when performance meets expectations [2] Group 2: Structural Highlights in the Macro Environment - The online entertainment sector has exceeded expectations due to adequate content supply and capturing consumer spending, particularly in online gaming and music [3] - China's retail sales have grown by 3.7% year-on-year, with online sales of physical goods performing even better at a 6.3% increase, driven by extended shopping festivals and optimized platform algorithms [3] - Advertising technology and AI-related companies have positive outlooks, while traditional media platforms are underperforming [3] Group 3: Trends in the Internet Industry - Chinese internet giants are increasing capital expenditures and investing in AI, with a focus on GPU efficiency and flexibility in adjusting investment targets based on demand [4] - Domestic AI chip performance is improving due to ongoing self-research investments and local GPU manufacturers' development, with advancements in system-level technologies like "super node" technology [4] - Major cloud companies are maintaining full-year capital expenditure guidance, emphasizing chip utilization and deployment efficiency amid supply chain uncertainties [5] Group 4: Instant Retail Investments - Platforms are increasing investments in instant retail to drive low-frequency e-commerce business through high-frequency delivery transactions, with signs of short-term competition stabilizing [6] - Market share appears to be stabilizing, and the industry is expected to bottom out post "Double Eleven" shopping festival, with competition returning to normal by the end of Q4 [7] - Long-term challenges remain, including intensified competition and the need to accelerate online penetration of delivery services among merchants and consumers [7]