Morgan Stanley: NVIDIA's resumption of H20 chip sales to China is expected to be a positive catalyst for Alibaba, Tencent, and Baidu

Morgan Stanley released a report stating that NVIDIA (NVDA.US) plans to resume sales of its H20 chips to China, which had been banned in April. NVIDIA has also announced the development of a new AI chip specifically designed for the Chinese market, named RTX Pro GPU, which is "fully compliant" with U.S. export control requirements. The firm believes this news is a positive catalyst for BAT (Baidu-SW (09888.HK), Alibaba-W (09988.HK), Tencent (00700.HK)).

The firm noted that, for example, Alibaba Cloud achieved an 18% growth in the first quarter and is expected to accelerate further in the coming quarters. Alibaba has announced a capital expenditure of RMB 380 billion over the next three years. Tencent announced that capital expenditures account for about 10% to 13% (low teens) of its revenue (the firm predicts RMB 95 billion for the fiscal year 2025). Given the lower spending in the first quarter, the firm expects Alibaba and Tencent to increase capital expenditures in the second half of the year.

Morgan Stanley stated that the GPU computing power ranking for BAT is as follows: (1) Tencent: AI applications (Yuanbao, WeChat applications), advertising technology upgrades (the main driver of advertising growth), cloud services; (2) Alibaba: cloud services, using AI to transform existing core e-commerce business, AI applications (Tongyi, Quark); (3) Baidu: migrating basic search to generative AI search, cloud services, and autonomous taxi services.

The firm has designated Tencent as the industry favorite: Tencent has solid revenue and profit growth, making it the best representative of consumer-facing AI applications, with its super app WeChat. The firm has seen early monetization achieved through AI advertising technology upgrades (advertising revenue has maintained double-digit growth over the past few quarters), which allows Tencent to achieve positive operating leverage despite increased AI investments, while facing lower ongoing competitive risks.

Morgan Stanley stated that Alibaba is the best AI driver in the mainland industry, with cloud service acceleration as a catalyst: the firm has repeatedly emphasized that Alibaba Cloud is well-positioned to capture the growing demand for AI adoption. However, the market has recently shifted its focus to the competition in food delivery/quick commerce, leading to weak stock prices. The firm believes that accelerated growth in cloud service revenue is a key catalyst (the firm estimates a 22% growth in the second quarter, compared to 18% in the first quarter)