<div id="readability-page-1"><div>[SINGAPORE] Tech companies like Meitu and Alibaba Group are among Morgan Stanley’s top stock picks for China’s artificial intelligence sector, which analysts say is “entering a new phase” at a major commercial inflection point.According to a research report from the bank on May 10, China’s Al is entering a new phase – one defined less by catching up in capability and more by capturing value.Rather than competing purely at the frontier, China is “optimising for speed, cost efficiency and system-level integration, enabling AI to diffuse rapidly across the real economy”.“The narrative has shifted decisively from training to inference, from technology to application, and from potential to real earnings,” the analysts added.<h2>“Different kind of strength”</h2>China was once seen as a structurally constrained AI ecosystem, Morgan Stanley said.In its new phase, however, the country has “since demonstrated a different kind of strength: the ability to scale, adapt and commercialise AI faster than anywhere else”.China has since leveraged its large domestic market and super-app ecosystem to accelerate adoption across both consumer and enterprise use cases, said the report, particularly via low-cost, open-source models and integrated platforms.“Hyperscaler capex, data centre expansion and AI cloud growth are enabling large-scale deployment and inference growth,” Morgan Stanley said.Domestic AI chips and system-level optimisation are narrowing the compute gap, with self-sufficiency improving and competitiveness increasingly evaluated on cost-performance rather than leading-edge nodes, it said.Physical AI is also becoming more prominent in the tech landscape.“From humanoid robots to autonomous vehicles, Al is becoming embodied,” the report highlighted.“China’s advantage – its manufacturing base, supply chain depth, and real-world data – positions it uniquely to lead in this next phase of physical Al,” the report noted.Government support, via China’s 15th Five-Year Plan, has institutionalised robotics as a strategic emerging industry, driving scale adoption.The bottleneck for China’s AI has now also shifted from compute to power and deployment, the report observed.“The constraint is no longer whether AI can be built, but whether it can be powered, scaled and delivered in real time. This is driving a new investment cycle in energy systems, particularly storage and grid flexibility, as AI infrastructure collides with physical-world limitations,” the analysts said.“The exponential demand is colliding with real-world power constraints, making energy storage and grid intelligence critical enablers.”<h2>Investment landscape shift</h2>The report emphasised that this “new phase” has adjusted the core investment thesis.“While enablers and foundational models remain the key investment thesis at the current stage, widespread adoption brings potential investment opportunities to those who reap the fruits of Al,” it detailed.“We believe the next phase of the China AI cycle will be characterised by a meaningful catch-up in application-layer performance, as AI adoption broadens and begins to translate into tangible incremental earnings and margin expansion.”For investors looking to position capital across this transition, the report flags Morgan Stanley’s top picks across distinct operational layers of the domestic AI stack.<h2>Top stock picks</h2>Among AI adopters, Meitu stands out for its digital software monetisation.“We expect Meitu to successfully monetise Al through its photo, video and design applications, with paying ratio to double in three years,” the report said.Other prominent consumer and enterprise application companies stand at the forefront of software value capture. “Beisen... Beijing Roborock, Midea Group and Ecovacs Robotics stand out on risk-reward among Al adopter stocks,” the report stated.Morgan Stanley noted that MiniMax and Z.ai were key foundational model providers in China Al. They viewed Alibaba as the “best-positioned full-stack Al platform”, while Tencent “remains strongest in the application layer”.As data centre electricity demands create grid constraints, spending is also rotating heavily into alternative physical infrastructure and energy systems. Morgan Stanley highlighted CATL, Yingliu and Sieyuan as the key names in power.The analysts picked Unimicron, Shennan Circuits, Shengyi Tech and Zhen Ding for their exposure to AI servers using local AI chips.Server manufacturers like Inspur and Lenovo also stand out as beneficiaries of an increasingly localised AI server supply chain, the analysts said, alongside Delta for its AI server power management/cooling solutions.As part of the trend towards localised infrastructure, some hardware providers are better positioned for domestic supply chain visibility. The analysts continue to favour Cambricon, Iluvatar, Naura, Amec, ACMR, SMIC and Unimicron as key beneficiaries.</div></div>

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Morgan Stanley reports that China's AI industry is transitioning from technology catch-up to value capture, with companies like Meitu and Alibaba as top stock picks. The focus has shifted to optimizing speed and cost efficiency, enabling rapid AI adoption across the economy. The report highlights the importance of energy systems and local infrastructure in supporting AI growth, with key investment opportunities identified in various operational layers of the AI stack.

- Morgan Stanley identifies Meitu and Alibaba as top stock picks in China's emerging AI sector, now focused on value creation and rapid adoption.  
- Analysts note that China has shifted from merely developing AI capabilities to optimizing for efficiency and large-scale commercialization, supported by strong government backing.  
- The report highlights a need for investment in energy systems to meet the increasing demands of AI deployment, with companies like CATL and Unimicron positioned to benefit from these changes.

China’s AI industry transitioning from technology catch-up to value capture: Morgan Stanley