Dongxing Securities: AIDC's high prosperity in chip manufacturing leads to a supply-demand imbalance, making domestic substitution promising

According to the Zhitong Finance APP, Dongxing Securities released a research report stating that breakthroughs in AI technology starting in 2024 will drive a rapid increase in global CSP CAPEX. It is expected that the combined CAPEX of the four major CSPs in North America will reach approximately USD 340 billion in 2025, a year-on-year increase of 49%. The combined CAPEX of the five major CSPs in China is expected to reach approximately CNY 428 billion in 2025, a year-on-year increase of 69%, with a high growth trend likely to continue into 2026. According to estimates, the domestic diesel power generation market size in 2025 will be CNY 12.5 billion, a year-on-year increase of 53%, and the market size is expected to reach CNY 18.2 billion by 2028, with a CAGR of 22% from 2024 to 2028. It is estimated that in 2024, foreign and joint ventures will account for 83% of the domestic diesel power generation market, while domestic capital will only account for 17%, indicating a broad space for domestic substitution, and export substitution has basically not yet begun. The AIDC diesel power generation market is expected to be highly prosperous, with domestic manufacturers in a favorable position to replace imports, leading to an increase in volume, price, and profit elasticity.

The main points of Dongxing Securities are as follows:

Generator sets are a key downstream growth point for diesel engines

The downstream scenarios for diesel engines are extensive, with overall industry sales fluctuating with the commercial vehicle cycle. Among them, generator sets continue to grow, with downstream applications including primary power sources for remote areas, backup power for data centers/commercial facilities/industrial enterprises, etc. In the data center scenario, diesel power generation is a key link to ensure high availability and business continuity, accounting for 2-3% of capital expenditures in large data centers.

Increase in CSP CAPEX drives accelerated growth in diesel power generation demand for data centers

Starting in 2024, breakthroughs in AI technology will drive a rapid increase in global CSP CAPEX. It is expected that the combined CAPEX of the four major CSPs in North America will reach approximately USD 340 billion in 2025, a year-on-year increase of 49%. The combined CAPEX of the five major CSPs in China is expected to reach approximately CNY 428 billion in 2025, a year-on-year increase of 69%, with a high growth trend likely to continue into 2026. According to Dongxing Securities' estimates, the domestic diesel power generation market size in 2025 will be CNY 12.5 billion, a year-on-year increase of 53%, and the market size is expected to reach CNY 18.2 billion by 2028, with a CAGR of 22%. According to Cummins' forecast, global diesel power generation demand will be USD 3 billion in 2023 and will grow to USD 12 billion by 2030, with a CAGR of 22%.

Global diesel power generation is dominated by foreign capital, and domestic substitution is expected under supply-demand imbalance

According to Dongxing Securities' estimates, in 2024, foreign and joint ventures will account for 83% of the domestic diesel power generation market, while domestic capital will only account for 17%, indicating a broad space for domestic substitution, and export substitution has basically not yet begun. Domestic manufacturers such as Weichai, Yuchai, and Shangchai are achieving technological accumulation through joint ventures and acquisitions of overseas brands, continuously narrowing the product strength gap with foreign manufacturers. With the current global diesel power generation demand exploding, overseas manufacturers are facing tight schedules and cautious expansion, with some orders from Cummins having delivery cycles of 12-18 months, and Caterpillar/MTU orders scheduled until 2026. Under the supply-demand imbalance, diesel power generation prices continue to rise. Dongxing Securities believes that domestic diesel power generation manufacturers have advantages in expansion speed, pricing, and response speed, and are expected to be the first to achieve domestic substitution in data centers and are likely to expand overseas for global substitution.

Target aspects

Engine segment: Weichai Power (000338.SZ), Yuchai International (CYD.US); Generator set segment: Weichai Heavy Machinery (000880.SZ), Keta Power (300153.SZ), Taihao Technology (600590.SH); Engine component suppliers: Tianrun Industry (002283.SZ) and others.

Risk Warning

The growth in computing power demand may fall short of expectations, the progress of domestic data center construction may not meet expectations, and there is a risk of technological substitution