To The Moon

💰BABA standing out as the undisputed MVP of the night's market.

💹$Sony(SONY)$/$Take-Two(TTWO)$/ $Kingnet Network Co.,Ltd.(002517)$: Musk's xAI initiative is driving industry transformation, prompting strategic early positioning.

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| Market recap

On Thursday, major indices predominantly declined, opening lower and experiencing heightened volatility throughout the session. They paused just short of new highs, effectively reversing nearly all gains from the previous three days.

$NASDAQ Golden Dragon China Index(HXC)$ surged by 1.6%, with most popular Chinese concept stocks also advancing. $VNET Group(VNET)$ increased by nearly 13%, $Alibaba(BABA)$ rose over 8%, and $Kingsoft Cloud Holdings Ltd(KC)$ climbed more than 4%, boasting a year-to-date gain exceeding 90%.

Megacaps

Alibaba emerged as the standout performer, rallying on its ambitious AGI roadmap. Among the MAG 7, only NVIDIA (NVDA) and Apple (AAPL) showed modest gains, closing in the green. Other large-cap and mega-cap peers broadly declined. During last night's earnings call, the CEO extensively discussed the AI strategy, announcing increased investments in AI infrastructure, large models, and AI applications. Additionally, the upcoming release of the Qwen2.5-Max deep inference model demonstrated strong market confidence.

Pullback

A broad sell-off affected numerous stocks, with $Palantir Technologies Inc.(PLTR)$ and $AppLovin Corporation(APP)$ experiencing significant declines. One day the market darlings, next day underperformers: PLTR slid 5% amid U.S. defense budget concerns and CEO share sales (now all traders noting its stretched 600x P/E ratio), while AppLovin (APP) tumbled nearly 9% on competitive pressures from Unity.

Holding tight, quantum computing stocks defied the trend, with $D-Wave Quantum Inc.(QBTS)$ +13%, $SEALSQ Corp(LAES)$ +10%, and $Arqit Quantum Inc.(ARQQ)$ +6%.

Earnings spotlight

When there are barely any standout performance and shifting preference towards Chinese assets, quality stocks were favored, experiencing rallies exceeding 20%. Gaming engine $Unity Software Inc.(U)$ soared by 30%, toy giant $Hasbro(HAS)$ climbed 13%, travel software $Sabre(SABR)$ jumped 22%, and medical services platform $Pediatrix Medical(MD)$ also increased by 22%.

$Domino's Pizza(DPZ)$’s earnings next Monday warrant attention, given recent post-results volatility in $McDonald's(MCD)$ and $Papa John's(PZZA)$.

| MGGA: The new MAGA

Believe it or not, Silicon Valley mogul Elon Musk, is an avid video game player. Reports highlight his overnight sessions of "Elden Ring" during the Twitter acquisition, live-streaming "Diablo" to top global leaderboards, and more. Now, there's another development: His xAI aims to "make games great again."

Elon Musk's announcement that xAI is entering the gaming industry could potentially reshape the sector's landscape. As AAA titles like "Dragon Age: Inquisition" focus heavily on value outputs while neglecting gameplay, players are responding by seeking better experiences. Musk promises to leverage cutting-edge AI to build dynamic narratives and procedurally generated worlds, avoiding the bureaucratic bloat of traditional studios and genuinely responding to players' calls to "return to the essence of gaming."

With AI support, the gaming industry's creative potential is further expanded. This industrial revolution will drive gaming back to the user, making it a more comprehensive entertainment medium and fostering a continuous stream of innovative vitality.

| AI: The new catalyst

Leading gaming companies worldwide are poised to benefit from the AI wave, including $Sony(SONY)$, $Take-Two(TTWO)$, and $Kingnet Network Co.,Ltd.(002517)$.

SONY

Leadership and Stability: $Sony(SONY)$ is a global leader in consumer electronics and entertainment. PlayStation has long dominated key gaming markets in North America, Europe, and Japan. Recent major releases like "Marvel's Spider-Man 2" and "The Last of Us" continue to solidify its position in the console gaming market.

Impressive Performance Amid Challenges: In its earnings call on February 13, 2024, Sony reported strong financial results. For the first three quarters of the fiscal year, group sales increased by 19% year-over-year, operating profit soared by 27%, and revenue from gaming and network services grew by 16%, highlighting robust core business growth and enhanced profitability.

Embracing Change and AI: In April, Sony CFO Jihshi Yuji officially took over as CEO, responsible for expanding the company's entertainment and gaming product portfolio. He stated that upcoming game releases, including Take-Two's confirmed "Grand Theft Auto VI" set for an autumn release and Sony's in-house "Soul of Sheep Mountain," will support the next fiscal year. With organizational restructuring, Sony is deepening the integration of AI technologies to optimize game development processes and improve the efficiency of film and television content production, building a technological moat for future growth.

TTWO

AAA Powerhouse, Industry Leader: $Take-Two(TTWO)$ is a global leader in interactive entertainment, owning renowned studios like Rockstar Games and 2K. The company is celebrated for its high-quality game IPs. In recent years, titles such as "GTA V" and "Red Dead Redemption 2" have helped Take-Two maintain its leadership in the open-world gaming sector.

Heavy IP Holdings with Generational Influence: "GTA V" has sold over 200 million copies, generating more than $10 billion in retail sales. The "GTA" series has reached sales of 430 million copies. "Red Dead Redemption 2" has sold over 65 million copies, and the "Red Dead" series has shipped more than 91 million copies. Additionally, upcoming releases like "WWE 2K25" and "Civilization VII," expected early next year, are set to drive strong revenue growth.

AI Empowerment for High-Quality Growth: The company has clearly integrated generative AI into NPC behavior design, scene generation, and automated testing. CEO Strauss Zelnick emphasized in the earnings call that AI tools will help development teams enhance content creation efficiency by 30%, providing technical support for the efficient production of major titles like "GTA VI."

Kingnet

Major Online Gaming Company with Numerous IPs: As a well-known listed online gaming company in mainland China, $Kingnet Network Co.,Ltd.(002517)$ has released and operated multiple games including "Angel's Battle," "New Beginning of Chinese Paladin," "Holy Spirit Realm," and "New Yitian Tulong Ji." In the first three quarters of 2024, the company achieved operating revenue of 3.928 billion yuan and a net profit attributable to the parent company of 1.28 billion yuan, representing year-over-year growth of 29.65% and 18.27%, respectively. Currently, the company has a price-to-earnings ratio of approximately 20×, indicating a reasonable valuation with significant growth potential ahead.

Partnering with Stephen Chow to Develop AIGC: On February 13, Stephen Chow's high-profile group invested in Kingnet's AIGC business platform in the gaming sector, initiating a new growth trajectory aimed at becoming the "first AIGC-listed company in film and gaming." In recent years, empowered by the AI trend, the company has developed the "Xingyi" large model, focusing on optimizing the game development workflow.

Active Overseas Expansion: The company's overseas revenue share continues to rise, with strong performance in Southeast Asia, Japan, and South Korea. In February, the company's game "Sui Shi Ling" debuted in Singapore and participated in the "Hangzhou Intangible Cultural Heritage Carnival – Singapore Edition" launch event.

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