Morgan Stanley: Alibaba replaces Tencent as the top pick stock, mastering the complete AI technology stack through self-developed chips

Morgan Stanley published a research report stating that having a complete AI technology stack significantly enhances the likelihood of becoming an AI winner. Self-developed chips also help alleviate competitive and regulatory risks. The firm upgraded Alibaba (BABA.US) to a preferred stock, replacing Tencent (00700.HK), despite short-term profit pressures.

The firm believes that mastering a complete artificial intelligence technology stack (covering chips, cloud, models, and applications) can create structural advantages, enabling internet companies to become AI winners, as demonstrated by Alphabet in the United States. Self-developed chips can reduce reliance on third-party suppliers, achieve application-specific designs, support rapid capacity expansion during demand surges, enhance cost efficiency, mitigate geopolitical risks, and lower regulatory risks.

Against this backdrop, the firm views Alibaba as a global AI winner, possessing top-tier self-developed AI chips, the largest cloud infrastructure provider in China and the fourth largest globally, the most widely adopted open-weight foundational models, and consumer-centric applications. Although Tencent currently lags behind, it benefits from the advantages of the WeChat ecosystem, making it a "late starter but rapidly catching up" participant. Baidu (09888.HK), through its Kunlun chips, appears to be a local chip competitor, but its core search business faces higher risks of AI disruption