Event: The company released its earnings forecast for the third quarter of 2024. 1) In Q1-Q3 of 2024, revenue is expected to be 58.36~6.358 billion yuan, +48.02% ~ +61.26% year-on-year; net profit to mother of 14.08~1.586 billion yuan, +56.16~+75.90% year-on-year. 2) 2024Q3 is expected to achieve median revenue of 2.334 billion yuan, +75.36% YoY, and +7.52% month-on-month; median net profit to mother is 0.644 billion yuan, +187.09% YoY and +13.94%.

CPU+DCU product performance continues to improve, and R&D projects are progressing smoothly. The Haiguang CPU is compatible with the x86 instruction set and has the advantages of ecology, performance and security; Haiguang DCU is based on GPGPU architecture and is compatible with general “CUDA-like” environments. At present, product performance continues to improve, R&D projects are progressing smoothly, and key technological breakthroughs have been achieved in high-end processor design and verification; and an independent open complete software stack for DCU products, including DTK (DCU Toolkit), development tool chain, model warehouse, etc., is fully compatible with the “CUDA” and “RoCm” ecosystems, adapts to different API interfaces and compilers, and supports common function libraries, AI algorithms and frameworks.

Shipments of x86 servers in China have continued to increase, and the volume and price of projects that have won the bid by Intelligent Computing has increased. 1) General computing: x86 processors have a first-mover advantage, and ecological and environmental barriers are significant. According to IDC, 2024H1 shipments in the Chinese x86 server market increased 10.4% year on year, and supplier revenue increased sharply by 31.3%. This is due to the accelerated pace of digital transformation of hyperscale cloud service providers and other Internet companies, and increased demand for servers. 2) Intelligent Computing Market: According to Celisson Communications Research Division, the winning bid amount for the 2024H1 China Intelligent Computing Market reached 7.21 billion yuan, an increase of 91.6% over the previous year; the number of winning projects reached 858, an increase of 32.8% over the previous year. National policy support resonates with the demand for enterprises to seek technical advantages, domestic intelligent computing demand continues to expand, and the DCU business will fully benefit from the wave of domestic GPU replacement.

Investment suggestions: Considering the scarcity of the company's x86 licenses, mastering core technology, and self-iteration capabilities, it continues to increase investment in technology research and development around the general computing market. Product performance is excellent, and product competitiveness remains leading in the market; moreover, the downstream market is extensive and the space is huge, and market demand continues to increase. The company's net profit for 2024-2026 is estimated to be 1.712/2.364/3.091 billion yuan, respectively. Maintain a “buy” rating.

Risk warning: Core technology accumulation is insufficient; authorized technology cannot continue to be used; domestic manufacturers are not progressing as expected in AIGC technology and products; there is a risk that public data used in research reports may be delayed or not updated in a timely manner.