Key points of investment:

Revenue grew 16 times in ten years, and China ranked first in the server market, achieving growth across cycles. Along with many rounds of technological transformation in China, the company's revenue increased from 4.2 billion yuan in 2013 to 65.9 billion yuan in 2023. In 2023, the company's share of the server market in China reached 23.6% (first), and the global server market share reached 6.4% (third), showing scarce ability to grow across cycles. The text describes in detail the company's transformation and development process.

Review: 20 years of server industry history. Localization/new technology/external environment have all accelerated the industry. Localization: In 2013, in the context of IOE removal, Lenovo's domestic market share increased from 6% in 2013 to 19% in 2015. New technology: In 2017-2018, in the context of cloud computing investment, Wave Information continued for 7 consecutive quarters, and the year-on-year revenue growth rate was over 50%. External environment: In 2020, demand for online offices increased, and 2020H1, Wave Information's revenue growth rate increased to more than 40%.

Outlook: Servers will continue to grow and be relayed by AI. In 2023, China's server market size was 30.6 billion US dollars, and the global market size was 132.9 billion US dollars. AI will continue to accelerate the server market as a new technological trend.

Demand: The Internet is the biggest demand side for servers, and the downstream share of the communications industry has increased significantly. The domestic server market accounted for 42%/16% of Internet/communication demand in 2023. The share of Internet demand remained relatively stable, and the share of communication increased rapidly.

Expected difference 1: Ability to increase net interest rates over a long period of time. Four major factors led to the subsequent recovery and increase in the company's net interest rate: 1) demand side, AI technology spread to the Internet, customer structure optimization; 2) supply side, breakthroughs in domestic AI chips and diversification of supply; 3) layout of server components to increase value; 4) cluster delivery to provide switches, solutions, etc.

Expected difference 2: Strong players continue to verify, and the competitive landscape returns to stability. Inspur Information has maintained a leading market share in the domestic market since 2017, with AI servers reaching 44% of the market share in 2024H1. The pattern is more stable after normal supply.

Expected difference of three: Four major technology trends in AI servers, the company has significant advantages. 1) Interconnection scale: Nvidia has advantages in inter-chip communication, and long-term cooperation with Nvidia has accumulated resource advantages; 2) Separation of training and promotion: domestic inference AI servers are cost-effective, and chip decentralization is conducive to head concentration. 3) Accelerated liquid cooling: PUE requirements are clear, and the company already has mature solutions for multiple scenarios. 4) End-side requirements: B-side AI private cloud deployment, relatively decentralized downstream can further exploit channel advantages.

Maintain a “buy” rating. Based on the high demand for AI computing power and the performance forecast disclosed by the company, etc., we raised our previous profit forecast, raised the company's customer revenue growth assumption in the Internet, communications, and financial industries, and adjusted the gross margin assumption. We expect the company to achieve net profit of 2.41, 2.85, and 3.4 billion yuan in 24-26 years (previously estimated at 2.14, 2.61, and 3.27 billion yuan, respectively). Comparable companies had an average PE value of 30x in '25, and the PE of Inspur Information was 23x in '25. There is plenty of room for growth, so they maintain a “buy” rating.

Risk warning: The external environment affects supply chain stability; demand for AI computing power falls short of expectations due to slow promotion of downstream applications; the supply of some domestic AI chips is prioritized or the company's market share is declining; and increased industry competition has led to gross profit margins.