Morgan Stanley: "Doubao" AI phone OEM options are limited, making it difficult to build an ecosystem; reiterates overweight on Tencent, Alibaba, and MEITU

AASTOCKS
2025.12.02 03:24

Morgan Stanley published a report stating that regarding ByteDance's "Doubao" plan to launch a smartphone AI assistant, while the ideal "Doubao" ecosystem appears rich, there are execution challenges. The firm believes that application-based stocks remain the preferred choice for AI investments, reiterating its "overweight" rating on Tencent (00700.HK), Alibaba (09988.HK), and MEITU (01357.HK).

Yesterday, ByteDance released a demonstration video showcasing the new "Doubao" smartphone AI assistant, which has been integrated into a sample smartphone operating system from ZTE (00763.HK). The "Doubao" smartphone AI assistant can read the user's screen, access smartphone applications, and complete complex tasks. This has raised concerns about the potential loss of traffic entry points for C-end applications. However, the firm believes there are challenges in promoting the "Doubao" assistant. Major smartphone OEMs and super applications are more inclined to develop their own AI assistants rather than rely on ByteDance. The firm believes that China's super applications are more dominant.

Morgan Stanley continues to be optimistic about the opportunities for Chinese applications in AI investments, including Tencent (best AI application agent), Alibaba (best AI infrastructure), and MEITU (AI multimodal beneficiaries).

The "Doubao" smartphone AI assistant is a deeply embedded AI assistant developed by ByteDance for smartphone operating systems, and a demonstration video has been released. In the demonstration, the AI assistant showcased the following capabilities, including interactive features: users can activate the "Doubao" assistant via voice, headphones, or the AI side button on the phone. Double-clicking the AI side button starts a voice or video call with the AI assistant. The assistant can read screen content in an overlay format. Multimodal generation: users can request the assistant to complete simple photo editing tasks, such as removing backgrounds.

Smartphone agent: the assistant can access installed applications to complete tasks such as price comparison, placing orders, restaurant reservations, remote vehicle control, and meeting scheduling. Memory function: with user authorization, the "Doubao" assistant will read and store screen information in the local environment for personalized tasks. Professional mode: in this mode, the assistant has stronger reasoning capabilities and can complete complex tasks across applications, such as planning itineraries and booking tickets based on preferences from social media.

Morgan Stanley believes there are promotional challenges in the above. The firm believes there are significant barriers to OEM collaboration. The implementation of the "Doubao" assistant requires in-depth technical cooperation and business negotiations with different smartphone OEMs, as it involves modifications at the operating system level, redefining the smartphone's value proposition, and weakening the OEM's bargaining power in the supply chain.

As for major smartphone OEMs (such as Apple (AAPL.US), Huawei, and Xiaomi (01810.HK)), they possess strong technical capabilities and are more likely to develop their own AI assistants rather than collaborate with ByteDance. The firm believes that ByteDance has very limited OEM options for collaboration. Establishing the "Doubao" ecosystem in the Chinese market is very challenging In terms of investment views, Morgan Stanley believes that applications remain the preferred choice for AI investment. Despite market concerns that "Doubao" assistants may become traffic entry points, weakening C-end applications, the firm remains optimistic about Chinese applications. The reason lies in China's super applications (such as WeChat, Taobao, Meituan (03690.HK)) which have highly concentrated traffic and are more dominant, as they tend to develop their own AI assistants to ensure traffic.

Morgan Stanley focuses on the following mainland AI application companies: (1) Tencent: The company is the best representative of AI applications in China. WeChat has the most extensive functions, the largest user base, and the highest usage frequency among all super applications. Tencent is about to launch the next-generation AI model, Hunyuan 2.0, which will further strengthen its AI position. (2) Alibaba: The company is the best representative of AI infrastructure in China, and its cloud revenue is expected to accelerate growth in the third quarter of the 2027 fiscal year, benefiting from strong industrial demand and an increase in market share among Chinese enterprises.

(3) MEITU: Continuous observation of improvements in MEITU's monthly operational data, as well as the expansion of its overseas market share, accompanied by upgrades in AI foundational model capabilities. The firm believes that MEITU's value lies in "last-mile services," which cannot be replaced by AI assistants

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