Core Viewpoint - AI concept stocks are experiencing a decline due to increasing concerns over high valuations, influenced by a sell-off in U.S. tech stocks [1] Group 1: Market Performance - As of the report, Kingsoft (03888) fell by 4.37% to HKD 31.94, Hua Hong Semiconductor (01347) dropped by 4.09% to HKD 72.7, and Alibaba-W (09988) decreased by 2.58% to HKD 155.1 [1] - The market is reacting to a significant short position taken by investor Michael Burry against Nvidia and Palantir, with the nominal value of put options exceeding USD 1 billion, representing 80% of his portfolio [1] Group 2: Analyst Insights - Dongwu Securities highlighted ongoing concerns in overseas markets regarding a potential AI bubble in U.S. stocks, alongside mixed earnings reports from major tech companies [1] - Google’s cloud computing and search business exceeded expectations, supporting the notion that AI tools are enhancing advertising revenue for tech giants [1] - In contrast, Meta's revenue beat expectations but raised concerns about future profits due to accelerated capital expenditures, leading to a cautious outlook among investors regarding tech stocks in Hong Kong [1] - Despite the influence of U.S. tech leaders on Hong Kong's AI tech trading pace, Dongwu Securities believes that current valuations in the Hong Kong tech sector are attractive, predicting a marginal recovery in EPS for the first quarter of next year [1]

Core Viewpoint - Google is expected to report strong third-quarter earnings on October 29, with Bank of America maintaining a "Buy" rating and raising the target price from $252 to $280, driven by anticipated revenue growth and increased advertising spending [1][2]. Group 1: Third Quarter Performance - Bank of America forecasts third-quarter revenue of $86 billion and earnings per share (EPS) of $2.17, slightly below market expectations of $85 billion and $2.29, with a search growth rate of 12% compared to the market's 11% [1][2]. - The anticipated increase in advertising spending is attributed to improved macroeconomic conditions, increased data usage, and a rise in advertising expenditures, which may offset a decline in organic search traffic [1][3]. - Operating expenses are estimated at $29.6 billion, with an operating margin expected to decline by 259 basis points year-over-year to 35.7%, although this may improve when excluding one-time legal expenses [1][3]. Group 2: Fourth Quarter Outlook - For the fourth quarter, Bank of America projects revenue and EPS of $93.8 billion and $2.59, exceeding market expectations of $92.7 billion and $2.55, with a search growth rate assumption of 12% and a slight decline in YouTube growth to 12% [2][3]. - The performance of Google in the third quarter is expected to influence market expectations for the fourth quarter, particularly in comparison to Meta and Microsoft, which will be reporting on the same day [2]. Group 3: Potential Upsides and Risks - Potential upsides for the third-quarter earnings call include rising advertising growth expectations due to favorable macroeconomic conditions and advancements in AI technology, as well as strong search metrics indicating effective execution through AI transformation [3]. - Risks include the possibility of search performance meeting or falling short of expectations, a slowdown in paid click growth, and lower advertising growth compared to Meta, along with uncertainties regarding fourth-quarter comments and increased capital expenditures [3].

Investment Rating - The report does not explicitly state an investment rating for the industry, but it suggests a positive outlook based on Google's strong performance and the growth in AI demand and investment [3]. Core Insights - Google's Q2 2025 performance was robust, with cloud revenue reaching $13.624 billion, a year-on-year increase of 31.7%. Search revenue was $54.19 billion, up 11.7%, and YouTube ad revenue was $9.8 billion, growing 13.1% [3]. - AI products are experiencing significant demand, with token processing exceeding 98 trillion in a month, a 104% increase from May. The active user count for the AI overview mode surpassed 2 billion, contributing to over 10% growth in query volume and 4% in paid clicks [3]. - Capital expenditure for Q2 was $22.45 billion, a 70.2% increase year-on-year, with guidance for FY 2025 raised by $10 billion to $85 billion, indicating a strong commitment to AI investment [3]. - The report anticipates optimistic earnings from other cloud vendors and recommends focusing on segments related to overseas computing power construction, such as optical modules, CPO, and PCB [3]. Market Weekly Review - The TMT sector saw varied performance from July 21 to July 25, with electronics up 2.85%, media up 2.15%, and computers up 1.71%. The communication sector declined by 0.77% [3]. - Notable sub-industry performances included semiconductor equipment up 6.54%, analog chip design up 4.47%, and digital chip design up 4.43%. Conversely, printed circuit boards fell by 1.10% [3]. Key Company Announcements - Significant events in the industry include the 2025 World Artificial Intelligence Conference and Huawei's open-sourcing of its self-developed programming language [14]. - Nvidia announced the release of the entry-level Blackwell graphics card RTX5050, set to launch in late July [14]. - OpenAI is reportedly preparing to launch its flagship model GPT-5 in August, along with mini and nano versions [14]. AI Application and Investment - The report highlights the interdependence of AI demand and investment, suggesting a positive feedback loop where strong demand drives increased capital expenditure [3]. - Companies like Ant Group are establishing AI service headquarters and R&D centers to enhance AI applications in various sectors [17]. AI Computing Power - The report notes that OpenAI plans to have over 1 million GPUs operational by the end of the year, indicating a significant increase in AI computing capacity [22]. - The U.S. Department of Energy is expected to release bidding information for AI data center and energy infrastructure construction, further supporting the growth of AI capabilities [19].

Core Insights - Google's CEO Sundar Pichai reported double-digit revenue growth in the search business, driven by new features like AI Overviews and AI Mode [1] - The latest financial report indicated that Q2 search revenue reached $54.1 billion, reflecting a year-over-year increase of 11.7% [1] - The AI Overviews product currently has over 2 billion monthly users globally, up from 1.5 billion in the previous quarter [1]

Group 1 - Citi has lowered the target price for Baidu to $138 while maintaining a buy rating [1] - In Q1 2023, Baidu's cloud service revenue grew by 42% year-on-year to 6.7 billion RMB, driven by demand from project-based and subscription-based enterprise clients [1] - The report indicates that while subscription revenue is highly sustainable, project-based revenue volatility may impact cloud service revenue forecasts for Q2 and the fiscal year [1] Group 2 - Baidu's AI transformation in its search business accelerated in Q1, with AI agent revenue accounting for 9% of core advertising revenue, negatively affecting traditional search ad revenue [1] - Core advertising revenue is expected to decline by 10% year-on-year in Q2 and Q3, with a slowdown to a 5% decline in Q4 [1] - Cloud service profit margins are projected to stabilize in the low teens, but investments in AI and the impact on search ad revenue will pressure operational profit margins in the coming quarters [1]

Investment Rating - Investment rating: Buy (maintained) [2] Core Views - The company reported Q1 2025 earnings that significantly exceeded expectations, with total revenue of $90.2 billion (yoy +12%), GAAP operating profit of $30.6 billion (yoy +20%), and GAAP net profit of $34.5 billion (yoy +46%) [5] - The company maintains a capital expenditure (CapEx) guidance of $75 billion for the year, with Q1 CapEx rising to $17.2 billion, up from $12 billion in the same period last year [6] - Revenue from Google services reached $77.3 billion (yoy +9.75%), with search revenue at $50.7 billion (yoy +9.85%) and YouTube ad revenue at $8.9 billion (yoy +10.35%) [5][6] - Cloud revenue was reported at $12.3 billion (yoy +28.06%), slightly below expectations [5][6] Financial Summary - Projected revenues for 2025-2027 are $385.1 billion, $427.8 billion, and $473.1 billion, with year-on-year growth rates of +10%, +11%, and +11% respectively [7] - Projected net profits for the same period are $114.0 billion, $115.2 billion, and $127.9 billion, with year-on-year growth rates of +13.8%, +1.1%, and +11% respectively [7] - Earnings per share (EPS) are expected to be $9.31, $9.50, and $11.42 for 2025, 2026, and 2027 respectively [10]