Incident: In the early morning of 6/11, Apple released Apple Intelligence on WWDC 2024. System+application-level AI kicked off the development of the end side.
End-side AI innovation, the industry chain welcomes a new round of development opportunities: Apple Intelligence is based on Apple's built-in big language model to execute users' voice or text instructions by understanding natural language. Apple's AI capabilities cover almost all important native apps and connect them with each other across apps. At the same time, Apple will connect to ChatGPT supported by GPT-4O, and users can use it for free without an associated account. The software updates presented by WWDC reflect, to a certain extent, its emphasis on AI on the end side. Additionally, on the recent Computex 2024, Nvidia introduced GeForce RTX technology to support running content such as G-Assist AI Assistant and NVIDIA ACE digital human-generated AI on the new GeForce RTX AI laptop; AMD announced a CPU segment product line of the 5th generation Zen5 architecture, covering applications from desktop to AI PC, from games to servers, and introduced NPU and GPU solutions; Qualcomm was in the speech Demonstrated the power of Copilot+PC. End-side AI is still being intensively catalyzed, and AI terminals are an effective way to commercialize it. As the system becomes more complex, the amount of code storage will increase, and the demand for switches such as AI phones and AIPC will increase, which will indirectly drive the volume and price of storage such as NOR.
Various product lines have bottomed out and there is still plenty of room for long-term growth: weak demand for mainstream storage products and a sharp drop in prices in 2023 led to a sharp drop in the price of niche storage products. As the server and mobile phone markets picked up, major industry players transferred part of their production capacity to HBM and DDR5, etc., leading to an increase in the value of their wafers, which spilled over 1-2 quarters of conduction and price increases to small-capacity and niche storage products. Niche DRAM prices have achieved a moderate increase in 2024Q1, and SLC NAND prices have also shown a moderate upward trend. The company plans to use its own capital of RMB 1.5 billion to participate in Changxin Technology's new round of financing, which is conducive to deepening the strategic partnership between the two sides, increasing DRAM market share, and further opening up market space.
Investment advice: We expect the company to achieve operating income of 73.09/91.90/10.951 billion yuan and net profit to mother of 10.69/15.86/22.12 billion yuan in 2024-2026. The corresponding PE was 48.61/32.76/23.49 times, respectively, maintaining the “gain” rating.
Risk warning: Market competition increases risk; new business development falls short of expectations; AI development falls short of expectations.