2025-09-22 01:00Summary of Key Takeaways from the Conference Call on China's Software and Data Center Industry Industry Overview - The conference focused on the software and data center industry in China, highlighting the significant role of AI as a growth driver for the sector [1][2]. Core Insights 1. AI as a Growth Driver: AI is identified as the key growth driver for software companies, with notable progress in AI monetization and increasing AI-related contract values [1][2]. 2. Operational Efficiency: Deployment of AI agents and coding is enhancing operational efficiency for software companies [1]. 3. Subscription Revenue: Companies with a higher share of subscription revenue, such as Kingdee and Meitu, are showing better growth visibility [1][2]. 4. Data Center Demand: There is strong demand for data centers driven by AI, with positive developments in domestic AI chip production to support order visibility [1]. 5. Public Cloud Growth: The AI-driven public cloud business is experiencing strong growth momentum [1]. Financial Performance 1. 2Q25 Results: Software companies reported mostly in-line results for 2Q25, with 1 beat, 12 in-line, and 3 misses. Companies with solid downstream demand and higher recurring revenue performed better [3]. 2. Data Center Performance: Companies like VNET, GDS, and Kingsoft Cloud exceeded expectations due to strong AI demand [3]. Market Data 1. Revenue Growth: The revenue of China's software and IT services industry grew by 12.3% YoY to Rmb8.32 trillion in the first seven months of 2025, with net profit increasing by 12.4% YoY to Rmb1.09 trillion [4]. 2. Sector Performance: In July 2025, the sector's revenue growth accelerated to 14.6% YoY, and net profit growth reached 13.9% YoY [4]. Investment Recommendations 1. Top Picks: The preferred companies in the software sector include Kingdee and Meitu for their solid growth and improving profitability. In the data center/public cloud space, VNET, GDS, and Kingsoft Cloud are favored for their strong growth driven by AI [2][9]. 2. Price Objective Changes: Price objectives for several companies were revised, reflecting changes in market conditions and company performance [7][11]. Employee Trends - The total number of employees in software companies under coverage declined by an average of 5% in 1H25 compared to FY24, indicating potential cost-cutting measures [13]. Margin Trends - There is an observed improvement in profitability across software and data center companies, with gross profit margins (GPM) and net profit margins (NPM) showing positive trends [14]. Conclusion The conference highlighted the robust growth potential of the software and data center industry in China, driven primarily by AI advancements. Companies with strong subscription models and operational efficiencies are positioned favorably for future growth. The overall financial performance indicates a healthy demand environment, although some segments, particularly cybersecurity, are facing challenges.