The company provides intelligent computing center network construction services for many large Internet customers. The company stated on the investor interactive platform on January 3 that Internet companies such as ByteDance, Alibaba, Tencent, Baidu, Kuaishou, and Meituan are the company's customers, and the company has provided intelligent computing center network construction services for many large Internet customers. The intelligent computing center network solution launched by the company can be applied to various business scenarios of big data processing, machine learning, and AIGC to support the rapid development of AI services; the AIGC quantitative analysis platform helps users analyze and optimize the large model training process through comprehensive analysis of different LLM models, hardware computing power, cluster size, network topology and parallel strategies.

The switching network is AIDC's blood vessel. Since entering the era of large models, as the scale of clusters has accelerated, the interconnection requirements between computing cards have increased rapidly. As the hardware core that carries the Internet, the switch industry chain space is constantly being opened up. Overseas Ethernet protocols are entering the top training clusters at an accelerated pace. At the same time, with the release of switch products compatible with Broadcom's TH5 chips in China, domestic digital communication networks are also expected to enter a new transformation cycle. At the same time, excellent domestic models such as Doubao and Keling continue to expand, which will drive domestic computing power construction upward. Domestic switches, as the core link in building China's computing power clusters, will also open up a new upward cycle.

Ruijie Networks provides a full range of AI networking solutions. The company has now launched the AIGC intelligent computing center network solution, which is compatible with various GPUs or accelerators. It has been applied in many large Internet companies to help users build green data centers with high performance and low energy consumption. The AI Fabric solution developed by the company can meet the needs of customers such as large-scale networking, rapid deployment limits, high data throughput, and intelligent operation and maintenance. The AI Fabric solution uses three-level networking. Each layer is designed according to a 1:1 convergence ratio, and can provide up to 32,768 400G ports to achieve a cluster load of 32K GPUs.

Ruijie Networks is actively deploying in the 800G/LPO/CPO direction. The company has reserves in many new technologies. In terms of 800G switches, the company has achieved small-scale supply of 800G switches, and its main customers are Tier 1 Internet companies. In terms of CPO switches, in 2022, the company collaborated with Tencent and Broadcom to innovate and implement CPO technology in switching networks. At the 2024 OFC exhibition, Ruijie Network, ByteDance, and Weide Technology jointly conducted a snake-shaped streaming test based on a 51.2Tbps switch fully equipped with an 800G LPO optical module.

Investment advice: We expect that under the continuous impetus of domestic AI demand, digital communication switch demand and market space will be further opened up. Due to the weak domestic campus switch market, we have revised our performance forecasts, but as domestic computing power accelerates construction, the company's high-end products are expected to accelerate. We expect the company's net profit to be 0.58, 0.73, and 0.85 billion yuan in 2024-2026, corresponding PE of 67, 53, and 46 times, maintaining a “buy” rating.

Risk warning: The progress of domestic AI computing power construction falls short of expectations, the volume of high-end products falls short of expectations, and the risk of trade friction.