An industry pioneer and leader in platform-centered enterprise-grade artificial intelligence. Established in September 2014, Fourth Paradigm is an industry pioneer and leader in enterprise artificial intelligence. The company provides platform-centered artificial intelligence solutions and uses core technology to develop end-to-end enterprise-level artificial intelligence products, and is committed to solving the efficiency, cost and value problems faced in the intelligent transformation of enterprises.

It is now widely used in the fields of finance, retail, manufacturing, energy and electricity, telecommunications and healthcare.

The Seer AI platform is a platform for the company to develop AI models. It can support model training with more than trillion parameters, support real-time inference at the millisecond level, and support model self-learning. At the same time, based on the company's world-leading AutoML (automatic machine learning) technology, it enables low-threshold AI model construction to help enterprises build models efficiently at low cost. The company's products have maintained a market-leading position for many years. According to research by IDC, an authoritative international research institute, the Prophet AI platform has been ranked number one in the Chinese machine learning platform market share for five consecutive years since 2018, and ranked first in China in the global machine learning operation platform (MLOps) manufacturer evaluation. The Prophet AI platform enables large-scale coverage of AI scenarios with a low threshold and low cost. The company is positioned as a software enterprise in the era of artificial intelligence. It is committed to empowering thousands of industries with artificial intelligence technology, helping various industries discover more rules and form larger models — using large industry models to improve enterprise production and operation efficiency. As the core of all of the company's businesses, the Prophet AI platform has drastically lowered the AI model construction threshold. Through strong AI infrastructure, standardized models are produced and efficiently reused, the average cycle of model construction has been reduced from half a year to the daily level, and the large-scale implementation of AI applications has been promoted. Currently, more than 10,000 models have been built on the Seer AI platform. The deployment method of the company's Prophet AI platform is flexible, supporting the different needs of different customers for the operating environment, including software licenses, servers, etc. At the same time, the company's AI models and applications can also be massively distributed at the edge and carried in the form of intelligent IoT AIoT.

The platform business is growing rapidly, and customer quality is steadily improving. In 2023, the company achieved revenue of 4.204 billion yuan, a year-on-year increase of 36.4%; gross profit of 1,980 billion yuan, a year-on-year increase of 33.2%, gross margin of 47.1%; the company focused on technology investment. The R&D expenses in 2023 exceeded 1.7 billion yuan, and the R&D expenditure ratio was over 40%; the profit target was clear. The adjusted net loss for the whole year was 415 million yuan, a decrease of 88.88 million yuan over the full year of 2022, a decrease of 17.6% year-on-year. Since 2021, there has been a year-to-month loss reduction trend. By business, in 2023, the Prophet AI platform business achieved revenue of 2,506 billion yuan, an increase of 68.0% over the previous year, accounting for 59.6% of total revenue; the SHIFT intelligent solution achieved revenue of 1,283 billion yuan, an increase of 7.4% over the previous year, accounting for 30.5% of total revenue; and the AIGS service achieved revenue of 416 million yuan, an increase of 4.7% year on year.

In 2023, the company continued to expand its customer base, significantly increase its influence in the industry, use artificial intelligence technology to contribute value to thousands of industries, deeply cultivate industries such as finance, energy and electricity, operators, transportation, etc., and continue to actively expand in strategic fields such as manufacturing, medical care, and retail. The total number of users increased to 445 in 2023, of which the number of benchmark users was 139, an increase of 33.7% over the previous year. The company insists on creating value for customers. The average revenue for benchmark customers was 18.38 million yuan, and the NDER (net revenue growth rate) for benchmark users in 2023 was 115%. At present, the company has established three main business segments: the fourth paradigmSAGE AI platform (4ParadigmSage), SHIFT Intelligent Solution (4ParadigmShift), and the fourth paradigmShift (4ParadigmShift), and the fourth paradigmAIGS service (4ParadigMAigs). The fourth paradigm Seer AI platform is the foundation platform for developing AI models and is the core of all businesses; SHIFT intelligent solutions are intelligent solution products provided by the company for various industries; the fourth paradigm refers to AIGS services, which are dedicated to empowering software development and improving development efficiency through generative AI technology.

The Seer AI platform continues to iterate, and Seer AIOS 5.0 may drive the development of the company's AI platform into a new era. Seer AIOS has been developing for nearly 10 years now. Through the evolution of 1.0 to 5.0, the AI threshold has been lowered and large-scale coverage of more scenarios has been achieved. In 2015, the Prophet AIOS 1.0 version was first released, improving model accuracy through a high-dimensional, real-time, and self-learning framework; in 2017, the Prophet AIOS 2.0 version used the automatic modeling tool HyperCycle to drastically reduce the threshold for model development; the Prophet AIOS 3.0 version released in 2020 specified AI data governance and went online to complete the “last mile” of modeling to implementation; in 2022, Prophet AIOS 4.0 introduced the Polaris Index to maximize the value of AI applications. Enhance the core competitiveness of enterprises. On March 29, 2024, the company released Prophet AIOS 5.0, a new industry-leading model platform. The principle of the big language model is to continuously predict the next word based on historical words, and replace it with a common phrase: Predict the Next “Word”. Currently, the general perception of the big model of the industry is to follow this logic, use the big language model to fine-tune industry data and predict the next word. However, scenarios from all walks of life often face not a simple text format, and what the industry needs is often not to predict the next word, but to predict the next “X”. The “X” here may include hydrological data, health reports, equipment monitoring values, design deductions, etc. Seer AIOS 5.0 has further upgraded its ability to predict the next X. Its core feature is to build a large model of the industry base based on X modal data from various industry scenarios. Prophet AIOS 5.0 solved the problem that the current industry model can only feed industry text data to the big language model and generate the next word, so that the big model can reach a wider range of fields.

Take the field of health management as an example. If a large amount of professional medicine and health-related corpus is fed to the big language model, the big language model can understand the relevant terms and indicators; however, if users send some indicators from their medical examination reports of the past three years to the big model and ask about their physical condition next year, it cannot predict and give answers, because this question goes beyond the scope of “language.” If the “X” modality changes from “text word” to “physical examination report data,” the model can continuously predict the next medical examination report based on historical medical examination report data. This is a big health management model built on the AIOS 5.0 platform. Using the technical principles of Predict the Next “X”, the company has created a series of major industry models with customers. We believe that the Prophet AI platform already has a deep accumulation and can bring stable revenue to the company, and the release of Prophet AIOS 5.0 has brought the technical capabilities of the company's AI platform to another level. The company's development is expected to enter a new era with the support of a strong AI platform, and the company's rapid growth is worth looking forward to.

The company has accumulated a deep research and development system for large models, and the AIGS strategy promotes the continuous expansion of the field of large-scale model implementation. The company has been deeply involved in high-dimensional models for nearly 10 years, and has developed systematic large-scale model development capabilities and commercialization capabilities. The company has been accumulating in the big model direction for more than 4 years. In February 2023, the company took the lead in releasing the 1.0 version of the self-developed platform product “Shikaku” to develop big models in the industry. It is one of the earliest commercialized big model products in China. In terms of technical indicators of understanding, reasoning, and generation capabilities, the Big Model was selected in the first batch of 7 model partners in Beijing in 2023, and then selected for the first batch of “2023 Trusted AI Cases - Excellent Case for Big Model R&D Applications and Tool Platforms” by the Information and Communications Technology Institute. The Big Model has already passed the national “Interim Measures on the Management of Generative Artificial Intelligence Services” for the record. In addition to creating first-class large model products, the company has invested considerable R&D resources to make the big model more “intelligent”. These capabilities include multi-modality, copilot, thought chain, etc.:

(1) Multi-modality: On the basis of generative dialogue capabilities, the big model has multi-modal input and output capabilities such as text, speech, images, tables, and video.

For example, in the field of computer vision, large models can combine images and text information for object recognition and scene understanding to improve the accuracy and comprehensiveness of image recognition tasks; (2) Copilot: using enterprise-level Copilot capabilities, it can be connected to enterprise internal application libraries, private enterprise data, etc., to analyze information and data, answer employees' inquiries or perform related tasks, and become a business assistant; (3) Thinking Chain: the big model has thought chain capabilities, based on a series of logically related thinking steps, to form a complete thought process. The company released AIGS (AI-GeneratedSoftware) in April 2023 and first proposed the AIGS (AI-GeneratedSoftware) strategy to restructure enterprise software using generative AI. The product is positioned as a new development platform based on a multi-modal large model to enhance the experience and development efficiency of enterprise software. In 2023, the company's large-scale model business has been widely implemented in the fields of finance, manufacturing, medical care, retail, real estate brokerage, education, energy, etc., improving generation-related services for hundreds of enterprises and partners. In 2023, “Shikaku” built an intelligent assistant on a network operation platform for a communications operator to empower frontline employees; co-built a large real estate brokerage model with a leading real estate agency; transformed the industrial design software of a transportation company to search for 3D parts and automate assembly using large models. The “MIT Technology Review” listed this case as an “advanced application case of China's AI big model”. We believe that the company has formed a systematic large model R&D system and commercialization capabilities, and more than 4 years of accumulation have laid the high-quality foundation for the company's long-term future development in this field. As the company's AIGS strategy continues to be promoted and superimposed, the continuous iteration of the Big Model and Prophet AI platforms is expected to continue to expand in the future, thus driving the company's long-term development.

Profit forecasting and investment advice. We believe that as an industry pioneer and leader in the platform-centered enterprise artificial intelligence field, the company has a deep accumulation in the field of AI platforms. The Prophet AI platform has been able to bring stable revenue to the company, and with the rapid development of the AI industry and the continuous iteration of the Prophet AI platform, the company's overall business ceiling is also constantly rising. The big model has brought new volume to the company, and its field of implementation is constantly expanding, and the overall development of the company is worth looking forward to in the future. We assume: 1) In terms of the Prophet AI platform business, the Prophet AI platform is the company's core product. With the continuous iteration of the Prophet AI platform, the business is expected to maintain a high growth rate. We expect the year-on-year growth rate of the company's video creative business to be 35%, 25%, and 20%, respectively, in 2024-2026.

2) In terms of the SHIFT intelligent solution business, the business development needs to be based on the company's underlying AI capabilities. Considering that the Prophet AI platform 5.0 was released at the end of March, the company's AI capabilities showed a new breakthrough in 2024. We believe that the business growth rate in 2024 is expected to rebound somewhat compared to 2023, but it will gradually return to steady growth thereafter. We expect the company's SHIFT intelligent solutions business to grow at 12%, 11%, and 10%, respectively. 3) In terms of AIGS service business, AIGS can reshape the development model and bring a clearer large-scale path. Generative AI has huge room for restructuring and transformation in the field of enterprise software, which can effectively improve the user experience and development efficiency of software, but considering that the business has only been officially implemented for about 1 year and is still in a stage of gradual expansion and steady growth in the next few years, we expect the year-on-year growth rate of the company-style AIGS service business to be 10%, 10%, and 10%, respectively. Combining various factors, we gave the fourth model 6-7 times PS in 2024, corresponding to the company's reasonable value range of HK$73.31-85.53 (1 HKD = RMB 0.927), which covered the “superior to the market” rating for the first time.

Risk warning. Risks that AI development falls short of expectations; risks that AI commercialization falls short of expectations, etc.