Summary of Conference Call on China Data Center Sector Industry Overview - **Sector Performance**: China data center stocks, specifically VNET and GDS, showed significant gains with VNET up by 11% and GDS by 8% due to an improving demand outlook for data centers as internet/cloud companies in China initiate new project bidding processes [1][2] - **Future Outlook**: The sector is expected to see stronger new orders in 2026 compared to 2025, easing AI chip supply issues, and potential support for rental pricing due to supply tightening [1][2] Key Points Order Recovery - **Recent Trends**: The China data center sector experienced a slowdown in new orders from April to July 2025, attributed to U.S. restrictions on H20 chips. However, a recovery began in August 2025, led by ByteDance, with total demand potentially exceeding 1GW [2][3] - **Beneficiaries**: Companies with ample land and power resources, particularly in western China or around Beijing, are expected to benefit from this recovery [2] AI Chip Supply Issues - **Current Situation**: The limited availability of advanced GPUs has led Chinese cloud service providers to increasingly procure domestic AI accelerators. The listing of more domestic AI accelerator companies is expected to enhance competition in the market [3] - **Future Prospects**: The potential resumption of advanced GPU offerings from overseas could alleviate the current supply issues [3] Rental Pricing Dynamics - **Market Trends**: Data center rental pricing was on a downward trend in 2023-2024 but stabilized in 2025. The Chinese government has tightened approvals for new data center projects since Q2 2025, which may help rationalize supply and support rental pricing [4] - **Projected Changes**: By the end of 2025, a limited number of new projects are expected to receive approvals, particularly in northern and western China, which may further tighten supply and support pricing [4] Valuation Comparisons - **Valuation Metrics**: China data center stocks are trading at lower valuations compared to global peers, with VNET and GDS at 11x and 14x FY26E EV/EBITDA respectively, compared to around 20x for global counterparts [1][8] - **Price Objectives**: The price objective for VNET is set at US$15.1, while for GDS it is US$50.0 / HK$49.1, reflecting a discount for lower profitability in the China business [7][17][19] Risks Upside Risks - Faster-than-expected growth in new wholesale orders - Quicker ramp-up in utilization levels - Supportive government policies for the data center industry [18][19] Downside Risks - Increased competition leading to lower service prices - Slower client onboarding - AI chip shortages due to further overseas restrictions [18][20] Conclusion - The China data center sector is poised for a recovery with improving demand and potential support for pricing. Companies like VNET and GDS are recommended as "Buy" due to their compelling valuations and growth prospects in the evolving market landscape [1][7][19]

Core Viewpoint - The Nasdaq China Golden Dragon Index rose over 3%, indicating a strong performance in Chinese concept stocks [1] Group 1: Stock Performance - Zhihu (ZH.US) surged by 22% [1] - Kingsoft Cloud (KC.US) increased by over 20% [1] - GDS Holdings (GDS.US) rose by over 9% [1] - Tuya Smart (TUYA.US) climbed nearly 9% [1] - Alibaba (BABA.US) gained 8% [1] - Century Internet (VNET.US) increased by over 7% [1]

Core Viewpoint - Youzu Interactive and Century Internet have established a strategic partnership to leverage their strengths in artificial intelligence applications and computing infrastructure, focusing on a green computing project in Inner Mongolia as part of the national "East Data West Computing" strategy [1] Group 1 - Youzu Interactive and Century Internet will collaborate closely on a green computing project [1] - The partnership aims to utilize each company's core advantages in their respective fields [1] - The collaboration is aligned with the national strategy to enhance computing capabilities in specific regions [1]

Group 1 - VNET Group, Inc. (NASDAQ:VNET) experienced a significant rally, increasing by 10.85% to close at $10.32, driven by investor interest in Chinese AI companies and a positive outlook from an investment firm [1][2] - Goldman Sachs predicts that 2026 will be a year of growth for Chinese stock benchmarks, with earnings growth supported by AI advancements and favorable policy measures [2][3] - The MSCI China Index is expected to rise by 20% to reach 100 by the end of the year, while the CSI 300 index is projected to grow by 12% [3] Group 2 - VNET Group is a leading data center provider in China, planning to develop 10 GW of green computing capacity in both domestic and international markets over the next few years [4] - The company launched its Hyperscale 2.0 initiative in June last year, focusing on innovation in AI data centers [4] - Potential development regions for VNET include Inner Mongolia, Hebei, Beijing, and the Yangzi River Region, featuring MW-level racks and GW-scale campuses [5]

Investment Rating - The industry investment rating is "Overweight" (maintained) [1] Core Insights - The report emphasizes the positive outlook for the AI industry, particularly in the context of the "AI + Manufacturing" initiative launched by the Ministry of Industry and Information Technology, which aims to promote deep integration of AI technology in manufacturing by 2027 [4] - The report highlights a potential recovery in domestic AIDC (Artificial Intelligence Data Center) bidding, indicating an increase in demand for domestic AI computing power [5] - Century Internet's financial performance shows significant growth, with a 21.7% year-on-year revenue increase in Q3 2025, suggesting a continued recovery in the AIDC sector [6] Summary by Sections AI Industry Development - The report notes that the government is actively promoting AI applications, which is expected to drive demand for domestic AI computing power [4] - The focus is on three core areas: AIDC, network endpoints, and computing endpoints, with specific recommended stocks for each segment [7] Financial Performance Indicators - Alibaba's capital expenditure for FY2026 Q2 reached 31.501 billion yuan, a year-on-year increase of 80.1%, indicating strong investment in AI cloud computing infrastructure [5] - Century Internet reported a total revenue of 2.58 billion yuan in Q3 2025, with adjusted EBITDA growing by 27.5% year-on-year, reflecting robust operational performance [6] Recommended Stocks - For AIDC data centers, recommended stocks include: Guanghuan New Network, Aofei Data, and others [7] - For AIDC liquid cooling and power supply, recommended stocks include: Yingweike and others [7] - For network endpoints, recommended stocks include: Zhongji Xuchuang, and others [7] - For computing endpoints, recommended stocks include: Oulutong, and others [7]

Core Viewpoint - The Nasdaq China Golden Dragon Index has seen an increase, currently up by 1.0% to 7789.5 points, indicating a positive trend in the market for Chinese companies listed in the U.S. [1] Company Performance - Huya has experienced a significant rise of 22.99% [1] - Bilibili has increased by 7.10% [1] - Haitian Network has grown by 5.58% [1] - Golden Sea Amusement has risen by 4.81% [1] - Century Internet has seen an increase of 5.37% [1]

Market Overview - As of January 7, U.S. stock indices showed mixed performance, with the Dow Jones up by 0.27%, the S&P 500 slightly up by 0.01%, and the Nasdaq down by 0.11% [1]. - The Dow Jones index reached 49,593.63, gaining 131.55 points [2]. - The S&P 500 index stood at 6,945.23, with a minor increase of 0.41 points [2]. - The Nasdaq index was at 23,521.50, decreasing by 25.67 points [2]. Sector Performance - Gold and silver stocks experienced significant declines, with Hecla Mining and First Majestic Silver dropping over 5%, and Pan American Silver and Kinross Gold falling more than 4% [2]. - Barrick Gold saw a decline of over 2% [2]. - Spot gold prices fell by 1%, while spot silver prices dropped nearly 5% [2]. Technology Sector - The technology sector faced a majority of declines, with Western Digital falling over 5% and AMD down by more than 2% [2]. Chinese Stocks - Chinese stocks showed mixed results, with Zai Lab increasing by over 5% and Century Internet rising by more than 4% [2]. - However, Hesai Technology and NetEase both experienced declines of over 2% [2].

Group 1 - The Nasdaq Golden Dragon China Index saw a significant increase of over 4% in early trading, indicating a strong performance of Chinese stocks in the US market [1] - Notable individual stock performances included Baidu and GDS, both rising over 10%, while other companies like DDL and VNET also experienced substantial gains of over 8% [1] - The overall trend reflects a positive sentiment towards Chinese companies, with multiple stocks showing increases of 6% or more, suggesting a potential recovery or bullish outlook in the sector [1] Group 2 - Other companies such as Tencent Music, iQIYI, and Oriental also saw their stock prices rise by over 4%, contributing to the overall positive performance of Chinese stocks [2]

Market Performance - The US stock market continued its post-Christmas pullback, with all three major indices closing lower, marking a subdued end to 2025. The S&P 500 index fell by 0.74% to 6845.5 points, the Nasdaq Composite dropped by 0.76% to 23241.99 points, and the Dow Jones Industrial Average decreased by 0.63% to 48063.29 points [1]. - For the year, the S&P 500 recorded an annual increase of 16.39%, while the Nasdaq managed a 20.36% rise, achieving over 20% growth for three consecutive years. The Dow Jones also rose by 12.97%, marking a similar performance for the third year in a row [3]. Individual Stock Performance - Among the top performers in the S&P 500, four storage giants—SanDisk, Western Digital, Micron Technology, and Seagate Technology—led the annual gains. Semiconductor stocks like Lam Research, AI application leader Palantir, and Comfort Systems, which provides HVAC solutions for data centers, also featured prominently [3]. - In the tech sector, only Google and Nvidia among the "Big Seven" tech companies outperformed the benchmark index in 2025 [8]. Commodity and Sector Movements - US silver futures experienced a significant drop of 9% due to a second margin increase by the CME Group within a week, negatively impacting the mining sector. Companies like Endeavour Silver and Silvercorp Metals saw declines of over 4% and 2.8%, respectively [11]. Chinese Stocks - The Nasdaq Golden Dragon China Index closed down 1.13% but recorded an annual increase of 11.33%. Notable Chinese stocks included Alibaba, which rose over 75%, and Netease, which increased by 58.28% [12]. Corporate News - Warren Buffett officially retired as CEO of Berkshire Hathaway on December 31, 2025, after a long tenure, although he will remain as chairman of the board [13]. - Tesla achieved a milestone with a driver completing a coast-to-coast journey using full self-driving technology, marking a significant advancement in autonomous vehicle capabilities [15]. - Nvidia and AMD are expected to enter a "year-long price increase cycle" for GPUs, driven by rising memory costs, with flagship models potentially reaching prices as high as $5000 [16]. - Trump Media & Technology Group announced plans to issue a new cryptocurrency to shareholders, despite a significant annual decline in stock value [17]. - Brookfield Asset Management is launching a cloud computing business to challenge tech giants like Amazon, aiming to reduce AI development costs [18]. - Uber is in talks to acquire the parking app SpotHero, which could create synergies between ride-hailing and parking services [19].

Group 1 - The Nasdaq China Golden Dragon Index rose over 0.5% in early trading [1] - Baidu increased by 5.75% [1] - NIO rose by 3.88% [1] - Xpeng Motors gained 3.51% [1] - NetEase saw an increase of 2.36% [1] - Century Internet rose by 1.28% [1]