AI Series #2_ What is Next To Be Anticipated After Recent Rally

Summary of Key Points from the Conference Call Industry Overview - The current cycle in the China internet sector is characterized by AI proliferation, cost efficiency, and technological breakthroughs, differing from previous cycles [1][2] - The competition landscape has shifted towards advanced technology and cost-efficient models rather than traditional competitive dynamics [2] Company-Specific Insights Tencent - Tencent's AI strategies are expected to be detailed in upcoming earnings, focusing on the integration of DeepSeek across various offerings, enhancing user experience [3] - The integration includes applications in Weixin Search, Enterprise Weixin, QQ Browser, and others, with notable upgrades to the Yuanbao chatbot [3] - Anticipated spending on AI and cloud services is projected to be less than that of Alibaba and ByteDance, with expectations of over RMB100 billion in FY26 for both competitors [3] Alibaba - Positive outlook for Alibaba, driven by accelerated cloud revenue and capital expenditure investments to leverage AI opportunities [4] - Anticipation of a model upgrade following Qwen 2.5-max, which is expected to attract market attention [4] - Alibaba's advanced technology and open-source models are highlighted, with significant improvements in unit economics for AIDC entering FY26 [4] Baidu - Baidu has seen a surprising acceleration in cloud revenue growth at 26% YoY, significantly above market expectations [5] - AI generative search results have reached approximately 83% of Baidu users, indicating strong user engagement [5] - Positive growth in online marketing revenue is expected in the second half of the year, supported by improved user experience and AI monetization [5] Market Valuation - The valuation of the China internet sector is viewed as undemanding, trading at a discount compared to US peers [6] - Recent earnings results for large and mid-cap companies in the sector have generally met or exceeded expectations, indicating a positive market sentiment [6] Additional Insights - The anticipated spending on AI and cloud services by major players indicates a robust investment trend in the sector, with significant capital expenditures expected from Alibaba and ByteDance [3][4] - The shift towards AI-driven models and applications is expected to redefine competitive dynamics in the China internet sector, moving away from traditional competition [2]