"Major Institutions" China Merchants Securities: AI productivity is driving the differentiation in the technology industry, urging to increase holdings in Meta, Pinduoduo, and NetEase, etc

China Merchants International published a research report indicating that the technology and internet sectors will show significant sub-industry differentiation between the second half of 2025 and 2026. The "seven giants" and technology hardware will benefit from the long-term demand for AI infrastructure and robust AI capital expenditures, performing strongly. On the other hand, global consumer SaaS is experiencing synchronized weakness, with different companies facing various bottom-up issues.

The report pointed out that market concerns about consumer prospects have intensified, leading to weakened revenue momentum and pressured profit margins. Against the backdrop of previously relatively high valuation multiples and limited incremental support from AI, these risks are further amplified. For Chinese companies lacking clear AI outcomes, stock prices continue to perform poorly, and valuation multiples remain low. Meanwhile, AI infrastructure companies are strengthening due to the attractiveness of capital expenditures and structural growth.

The report remains optimistic about AI leaders and suggests looking for selective layout opportunities in the consumer SaaS sector after significant corrections. Chinese peers such as Pinduoduo (PDD.US), NetEase (09999.HK)(NTES.US), Kuaishou Technology (02076.HK), and Tencent Music (01698.HK)(TME.US) demonstrate robust growth, profitability, and valuation support, recommending to increase holdings in Alphabet (GOOG.US), Meta (META.US), Netflix (NFLX.US), Roblox (RBLX.US), Pinduoduo, NetEase, Kuaishou Technology, and Tencent Music