To cope with AI smartphone competition from rivals like Huawei, $Apple (AAPL.US)$ is seeking recovery opportunities in the Chinese market. According to The Information, Apple and $Alibaba (BABA.US)$will collaborate to develop AI features for Chinese iPhone users. Stimulated by the news, on February 12, $BABA-W (09988.HK)$ Hong Kong stocks rose over 8%. As of the time of writing, neither Alibaba nor Apple has confirmed the news.

Apple has a large iPhone customer base, and collaborating with Alibaba to develop AI features is expected to drive demand for Alibaba Cloud's computing power and IDC (Datacenter).

Morgan Stanley Analyst pointed out that Alibaba, as China's largest e-commerce platform, can leverage its vast consumer data to help Apple develop personalized generative AI features. The potential collaboration may start with Alibaba and later expand to other Chinese Cloud Computing Service providers, which will be an important strategy for Apple to deepen its AI presence in the largest Internet market globally.

In addition, the popularity of DeepSeek has also led to an explosion in the demand for computational power at the inference end, and domestic AIDC (AI Datacenter) may benefit from inference demand, bringing about a revaluation of the AIDC Sector.

The demand for computational power drives the growth of IDC Datacenters.

AI large model parameters reach levels of hundreds of billions or even trillions, and training and inference require substantial computational power, with cloud AI computing constituting the primary demand. AI large models can utilize distributed computing architecture and cloud-native technology to access the computational resources of cloud datacenters for training and inference on vast amounts of data.

For example, OpenAI uses services from multiple cloud computing providers to support the training and inference of GPT, including $Amazon (AMZN.US)$ AWS, Google Cloud, $Microsoft (MSFT.US)$ Azure and IBM Cloud.

Datacenters are rapidly developing as the core infrastructure for AI computation. According to IDC consulting data, in the first half of 2024, the overall market size of public Cloud Computing Service in China (IaaS/PaaS/SaaS) will reach 21.08 billion USD (approximately 151.83 billion yuan), showing a strong market growth momentum.

In the IaaS market, Alibaba, Huawei, CHINA TELECOM, and CHINA MOBILE are among the top five in market ranking. $TENCENT (00700.HK)$ The total market share of these top five companies is 70.1%.

CICC stated that looking forward to 2025, a wave of investment in AI Datacenters (AIDC) by technology companies at home and abroad is expected to continue. Overseas, major technology leaders have already deployed relevant capacities globally, among which OpenAI's major shareholder has invested a significant amount. $Microsoft (MSFT.US)$ The investment amount in AIDC reaches up to 46 billion USD. $Alphabet-A (GOOGL.US)$ Investing 33 billion dollars.

On the other hand, DeepSeek's open-source technology has lowered the technical barriers, attracting small and medium-sized enterprises and developers to rush into AI application development, further promoting the development of AI cloud infrastructure. The outbreak of applications requires sufficient computing power support, which has led to a significant demand for AIDC.

CITIC SEC points out that the wave of AI and cloud computing-related businesses brings high prosperity and broad growth space to the IDC industry. At the same time, under the backdrop of declining interest rates in dollars, the decrease in long-term rates is expected to drive the appreciation of company asset valuations within the industry; the interest costs of building Datacenters will correspondingly decrease, along with relief from interest expenses. It is expected that profit releases will continue to accelerate in the next two to three years, and performance improvements are certain.

UBS Group believes that 2024 will be the first year of a surge in AI training volume in China, with about 80% to 90% of Internet Datacenter demand driven by AI, mainly concentrated from about two super large customers. It is anticipated that as the costs of AI training and inference significantly decrease, more end-users will utilize AI to improve their business or development, especially retail customers.

At the same time, UBS Group expects IDC demand to vary by geographic location, with IDC operators that have abundant resources in first-tier and core cities enjoying greater pricing power.

So, which IDC operators or industry chain-related companies are there in the Hong Kong stock market? Futu News has compiled relevant concept stocks for mooer reference.

$GDS-SW (09698.HK)$ The largest third-party IDC service provider in China, focusing on Datacenter hosting and value-added services. The company has been deeply involved in the IDC Datacenter field for many years, owning over 150 Datacenters, covering core domestic cities, and actively expanding into the overseas Datacenter market. In 2024, the company will establish a presence in Fuchu City, Japan, entering the Northeast Asia Datacenter market. On February 12, GDS Holdings surged nearly 9% at the close.

The three major telecom operators: $CHINA TELECOM (00728.HK)$ 、 $CHINA MOBILE (00941.HK)$ 、 $CHINA UNICOM (00762.HK)$ 。

According to IDC consulting data, in 2023, the combined market share of the three major operators in the domestic IDC service market is 56.9%. In the first half of 2023, the number of IDC racks for China Mobile, China Telecom, and China United Network Communications was 0.478 million, 0.534 million, and over 0.38 million respectively. The operators have built a nationwide IDC resource layout; China Mobile has proposed a "4+N+31+X" computing network layout, China Telecom has constructed a "2+4+31+X+O" computing resource pool, and China United Network Communications has built an integrated computing layout of "5+4+31+X."

$ZTE (00763.HK)$ : Provides servers, storage products, and datacenter switches, supporting high-performance scenarios such as liquid cooling and GPUs, suitable for building large-scale, highly elastic, long-term evolving datacenter networks and high-end parks aimed at cloud computing virtualization.

ZTE's datacenter switches have been continuously gaining market share in the operator sector, winning the bid for the China Mobile cloud resource pool datacenter switch project for the sixth consecutive time. The switches provided can meet the deployment needs of network cloud resource nodes in multiple provinces and cities across the country.

$CHINASOFT INT'L (00354.HK)$ : A Huawei Cloud partner, focusing on computing operation and leasing, participating in the construction of indigenous computing ecology, providing AIGC large model services, Ascend cloud GPU + hybrid cloud computing integration products, etc. The company's power scheduling platform is widely applicable to AI computing centers and supercomputing centers.

$KINGSOFT CLOUD (03896.HK)$ : The main driver of performance growth in 2024 is the intelligent cloud business. In the third quarter of 2024, Kingsoft Cloud's artificial intelligence revenue surged to 0.36 billion yuan, increasing its proportion of the public cloud to 31%.

Kingsoft Cloud has surged 52% since the beginning of this year. Goldman Sachs pointed out that the recent rise in stock prices is attributed to investor responses being stronger than expected regarding the following factors, including the framework agreement signed with related parties for the years 2025 to 2027. $XIAOMI-W (01810.HK)$ and$KINGSOFT (03888.HK)$XIAOMI is increasing its investment in AI, among other factors.

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Editor/Rocky