Guosen Securities has released a research report stating that as Agent-driven token usage has exploded since the beginning of this year, large model developers are seeing their business models gradually form a closed loop. Revenue growth is significantly outpacing the increase in training costs, and the gross margins of these model companies are continuously improving.
The firm believes the narrative for AI investment is now shifting from demand-side factors towards a focus on whether the supply-side can support subsequent order fulfillment. Consequently, the capacity release of in-house developed chips, as reflected in this quarter's cloud provider financial reports, is crucial for their profit margins. Companies like Amazon and Google, with ample reserves of their own chips, have seen their cloud business operating profit margins (OPM) continue to rise.
Guosen Securities continues to recommend cloud providers possessing both large model capabilities and in-house chip development expertise. For the Hong Kong market, it maintains its recommendation for Alibaba Group Holding Ltd (HKG: 9988)
and Baidu Inc (HKG: 9888).
The firm's key views are outlined below.
Review of May's Market Performance
The Hang Seng Tech Index was largely flat in May, posting a modest monthly gain of 0.3%. In comparison, the Nasdaq Internet Index rose by 2.0% over the same period.
Individual stock performances within the internet sector were mixed. Among Hong Kong-listed stocks, Baidu, NetEase, and Kuaishou were the top three performers for the month. For U.S.-listed stocks, Microsoft, Sea Ltd, and Nvidia led the gains.
From a valuation perspective, the Hang Seng Tech Index's price-to-earnings ratio (TTM) declined compared to the previous month, standing at 20.54x, which places it at the 10.2 percentile since the index's inception. The Nasdaq Index's P/E (TTM) also decreased month-over-month to 40.79x, positioning it at the 59.31 percentile over the past decade.
Key Developments in Artificial Intelligence
1) Google: Launched the new Gemini 3.5 Flash model and introduced the Gemini Omni model.
2) OpenAI: Released GPT-5.5 Instant and three new real-time voice models.
3) Cursor: Unveiled the Composer2.5 coding model.
4) xAI: Released the Grok Imagine quality model API.
5) Tencent: Launched OpenSearch-VL and the design agent Ardot.
6) Alibaba: Introduced Qwen3.7-Max-Preview and Qwen3.7-Plus-Preview.
7) ByteDance: Released the full-modal large model Doubao-Seed-2.0-lite.
8) Meituan: Open-sourced LongCat-Video-Avatar1.5.
9) Baidu: Released Ernie5.1 and the general-purpose agent DuMate.
10) Kimi: Launched KimiWebBridge from Moonshot AI.
11) FaceWall Intelligence: Released BitCPM-CANN and introduced MiniCPM-V 4.6.
12) Zhipu AI: Unveiled the high-speed version GLM-5.1.
Updates from the Internet Industry
1) Gaming: Overseas revenue for domestic games continues its rapid growth. In May, 154 domestic game licenses were issued, including titles like NetEase's "Guiying Cangfeng".
2) Fintech: Client reserves at payment institutions grew 4.4% year-on-year in April.
3) Short Video: The National Radio and Television Administration is advancing a high-quality micro-drama initiative. Douyin and Kuaishou are providing funding support for live-action short dramas and animated series.
4) E-commerce: Millions of merchants are heavily investing in the 618 shopping festival. JD.com is intensifying its offline self-operated store strategy to gain an early advantage.
5) Local Services: JD.com's instant delivery service boosted gift-giving during the 520 festival. Kuaishou and Meituan are increasing their focus on local consumption scenarios.
Risk Factors to Consider
Potential risks include policy changes, intensified competition in the short video sector, and a slowdown in overall advertising growth due to macroeconomic headwinds.
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