Shulou(Shulou.com)11/24 Report--

Internet Chinese stocks have the hope of taking off the hat of "terminal stocks". In the second earnings season of 2023, Alibaba, Tencent, Baidu, NetEase and other leading Internet companies all received good news, with significant growth in revenue and profits, sending out positive signals. And after a long trough of two or three years, the NASDAQ China Golden Dragon Index rose nearly 20% in July, although there have been fluctuations in August, but the overall upward trend.

Confidence is back. From the recent release of the 13F report in the second quarter of 2023, it can also be seen that many well-known investment institutions, such as Hillhouse, Tiger Global Management, JPMorgan Chase, Citigroup, Jinglin, and so on, have heavily increased their positions in Internet Chinese stocks, indicating that the rebound window of the Chinese stock market is now open. Chinese stocks are expected to perform better in the coming months.

So, after the "darkest hour", how long can the upsurge of Chinese stocks last? Which of the most concerned Chinese Internet companies has the most stable performance? Can the AI on the tuyere help them take off again?

Who is the most stable stock in the Internet?

Since the beginning of this year, Chinese stocks on the Internet have bid farewell to the past "roller coaster"-like winds and waves and experienced a new upsurge after striving for progress in the midst of stability. From the beginning of 2023 to August 23, Alibaba shares have risen 1.22%, Tencent 1.01%, Meituan 25.41%, NetEase 40.1%, JD.com 39.84%, Baidu 14.95%, Kuaishou 9.36% and Ctrip 11.11%.

It can be seen that the share prices of the two giants Ali and Tencent have stopped falling and rebounded, but the best performance of the Internet in 2023 is neither Alibaba, which is split into "1x 6N", nor Baidu, the number one AI concept stock in China, but the obscure NetEase. What is more noteworthy is that the 40 per cent increase made NetEase surpass JD.com to become the fourth largest company in China's Internet sector by market capitalization.

According to the Chinese version of Barron Weekly, NetEase is the best-performing large Internet company so far this year. "NetEase's investment logic is different from that of other Internet companies, so its internal business development and external positive sentiment have a certain degree of independence."

Version number is open, AI Dongfeng, popular style appears frequently, insert wings for NetEase's stock price. In the second quarter, NetEase's net income was 24 billion yuan, and the continuing operating net profit belonging to the company's shareholders under non-GAAP was 9 billion yuan, maintaining sustained growth, while this steady performance will continue into the third or fourth quarters.

The "upstream cold" and "peak speed" launched at the end of June will make a long-term contribution to income. So far, the mobile game "against the current and Cold" has been on the Apple best-seller list for more than 50 days, surpassing "Arena of Valor" and "original God" on the upper stream to reach the top of the App store best-seller list again, while "Top Speed" can still be ranked first on the free list and fifth on the best-seller list nearly 20 days after its launch.

In addition, NetEase this year's biggest dark horse "egg party" performance can not be ignored, has been firmly in China's iOS mobile game DAU ranking No. 2 for seven months in a row, showing strong vitality. According to the list released by Sensor Tower, the outstanding performance of new and old products has led to a 69% increase in revenue from easy mobile games in July, bringing it back to the second place in the list of global mobile game publishers.

Xiaomo predicts that since most of NetEase's new games will be launched at the end of June, it is estimated that game revenue in the third and fourth quarters will be 3% and 8% higher than market expectations, respectively, while online game revenue growth will be driven by the strong performance of new games. up 14% and 23% year-on-year. Affected by popular styles, a number of brokerages increased their positions in NetEase. Among them, Jinglin assets increased its position in NetEase by 531200 shares, increasing the number of shares held to 2.3183 million shares at the end of the second quarter, with a total market value of US $224 million, making it the third largest stock in Jinglin.

It seems that NetEase will be stable again in 2023.

Why the "unknown" NetEase?

NetEase has always been regarded as low-key and not chasing the wind, so why can he become the best-performing Internet company since 2023?

The confidence of investors is naturally given by the product, and the strength of the product must come from the players. The "demographic dividend" of the game industry has disappeared, and with the rise of the taste of players in the game industry, the previous extensive way of exchanging coins no longer works, and users must be clearly given a reason why they have to buy.

Therefore, when the game content can no longer arouse the interest of players, subversive innovation is the only way to break the ineffective volume of the industry. It is not difficult to find that NetEase's three popular styles this year have one thing in common: new technological innovation and short video marketing.

"against the cold" mobile game: claimed to be the world's first large-scale landing AI game in the open world, based on "Yuyan", "Yuzhi", "Dan Qing" and other big models, focused on the application of machine learning, engine learning and other more than 30 AI technology achievements, launched intelligent NPC, AI face pinch, AI lyrics and other innovative games. This kind of AI-driven innovative play, on the one hand, can enable game development to improve efficiency, game character behavior control, game content generation, etc., on the other hand, players can use their imagination to create communicative content.

"Top Speed": specially set up a team of technical experts to carry out a large number of customized development according to the characteristics of mobile games on the basis of using the industry's top technologies such as physical collision, visual rendering, sound kneading, etc., and collect scanned runway maps on the spot to enhance the sense of substitution, which greatly reduces the threshold for 3A host-level racing games to run on mobile games. At the same time, use AI to help players do some operations, such as choosing a safer driving route, to avoid collisions. According to incomplete statistics, there are more than 80 Douyin accounts full-time "Peak Speed" related short video content production and live streaming.

"Egg Party": players not only experience and create in the game, but also share their experiences and achievements on communities and other social platforms, thus attracting more users to experience and create. on average, millions of maps made by players are born from the game every week. Recently, the "egg party" added AI to generate map components, colors, picture generation pixel block stitching and so on, so that people can release from the repetitive and heavy physical work, and focus more time and energy on the display of creativity.

To be able to use such a fast speed, with the help of AI technology to innovate the way of playing games, to launch a large-scale application of AI technology games, is bound to be inseparable from the long-term huge investment. The official of the mobile game "against the cold" announced that the team had 700 people and spent 1 billion on research and development. In the second quarter, NetEase said that in the past five years, the R & D investment has reached nearly 60 billion yuan, with an average R & D investment intensity of 15%, and the R & D investment intensity has remained in the lead in the Internet industry. This is also the focus of NetEase's game business not falling but rising after breaking up with Blizzard.

Can Chinese stocks continue to revel on AI in the second half of the year?

On the other side of the ocean, Invida once again injected chicken blood into AI concept stocks. On August 23, local time, Nvidia reported revenue of $13.51 billion for the second quarter of fiscal 2024, up 101% from a year earlier and higher than expected of $11.19 billion; net profit was $6.19 billion, up 843% from a year earlier. Huang Renxun and Klaette Kress, Nvidia's chief financial officer, repeatedly mentioned the word "tremendous" to describe Nvidia's achievements in the quarter.

According to the Research report on the Innovation value of AI large Model Industry, China and the United States account for more than 80% of the global R & D in the field of large models, of which the number of large models in China is second only to the United States.

Therefore, domestic Internet companies must say AI, and tell good stories and new stories.

However, recently, there is a relatively big trend: the domestic AI competition has entered the stage of "industrialization" from comparing parameters and model size. To put it simply, when the market judges whether a company has AI attributes, it needs to see clearly whether AI technology can be translated into applications, or even into corporate profits.

In the second quarter of Ali earnings call, analysts asked when Ali AI products are profitable? Zhang Yong replied: "as a cloud service provider, we want artificial intelligence companies and their models to use Aliyun's infrastructure, including our basic models, and deploy these basic models on Aliyun, not only for Ali himself." it also allows enterprises to use our basic model to fine-tune and make applications suitable for their own industries, which is a huge opportunity for me. "

To put it simply, Ali's route is still facing the B side, providing the large model as an infrastructure to various industries to make a profit.

Coincidentally, the practices of Tencent, Baidu and JD.com are similar. Tencent said in its second-quarter earnings report that Tencent Cloud industry big model capability has taken the lead in many SaaS products, such as Tencent Enterprise Point, Tencent Conference, Tencent Cloud AI Code Assistant, and so on. In terms of external industrial ecology, Tencent industry model has been applied to more than 10 industries, such as finance, literature and tourism, media, government, and so on, providing more than 50 industry solutions. Baidu said it is speeding up the restructuring of the product line and the application of the layout AI model in the consumer product line.

Xia Haoyang, fund manager of Guangfa Fund, said: "AI concept stocks have formed the main line in both A shares and US stocks. Both the upstream computing plate and the downstream application plate have risen a lot so far this year. Chinese stocks such as Internet platform companies that develop large models and game companies in downstream applications imply expected investment opportunities."

It can be seen that the battlefield of the hundred Model War in the second half of the year must go deep into the industry, and large Internet companies and game companies with long sleeves must be the main players in the war. At present, one of the first industrialization areas of AI is the game, and the changes brought about by planning and promotion, art efficiency, auxiliary operation, strengthening monitoring, innovative marketing and so on have been obvious. Perhaps NetEase's exploration in the "upstream cold" mobile game is a train of thought that can be used for reference by the industry-- take the practical cost-effective route, and use the fastest speed to let the big model run in the field where it is best at. From the results, the effect of NetEase's AI model in the production and play side of the game industry has been verified, and the next experiments in music, education, engineering and other fields are already under way, and whether the final success can be reflected in profitability can be expected.

AI technology is changing the world and even subverting it. In the second half of the year, the AI protracted battle between the application side and the industry side really began. Perhaps only after the ebb of the concept, can we know who is the real protractor.

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