CITIC Securities: Rising Computing Power Prices Spread, Three Clues to Expecting Better-than-Expected Q1 Earnings

CITIC Securities’ research report states that the technology sector’s performance in March shows that computing power as a whole is still in short supply, and price increases continue to spread to areas such as cloud services and CPUs. However, due to macro disturbances and geopolitical shocks, the technology sector’s valuations have suffered a significant hit. Looking ahead to April, on the one hand, historically after April enters the earnings season, the market is often in a period of risk appetite contraction; on the other hand, given that the duration of the current geopolitical disturbances is still difficult to judge, we therefore recommend focusing on resilient stocks with strong 2026 Q1 earnings and reasonable valuations. After reviewing A-share technology sector companies that have already released 2025 earnings forecasts, we found that among CITIC’s third-level industry categories, the AI computing power infrastructure-related segments are broadly in a high level of business optimism, with year-over-year profit growth exceeding 50% in many cases, including network connection and tap-installed systems, PCB, cables, semiconductor equipment, integrated circuits, and other segments. In addition, the motorcycle segment, games, and display component segments are also in a relatively high level of business optimism.

For allocation, we recommend focusing on three directions: 1) domestically made semiconductor equipment that benefits from the two-storage industry’s continued capacity expansion; 2) optical modules, fiber optic cables, PCB and upstream components, and storage that remain in a healthy cycle, where there is a catch-up rally logic in passive component segments; we recommend the optical module leader with high earnings certainty and a relatively reasonable valuation level as the top pick. 3) domestically produced computing power remains persistently in short supply; focus on companies in the ByteChain and AscendChain, as well as exchange chips and server foundry services that benefit from the explosion of supernodes. At the same time, CITIC Securities also points out opportunities arising from the iteration of multimodal models in May and June.

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Technology | Computing power price increases spreading out—watch three clues from upside Q1 earnings: April 2026 investment strategy

The technology sector’s performance in March shows that computing power as a whole is still in short supply, and price increases continue to spread to areas such as cloud services and CPUs. However, due to macro disturbances and geopolitical shocks, the technology sector’s valuations have suffered a significant hit. Looking ahead to April, on the one hand, historically after April enters the earnings season, the market is often in a period of risk appetite contraction; on the other hand, given that the duration of the current geopolitical disturbances is still difficult to judge, we therefore recommend focusing on resilient stocks with strong 2026 Q1 earnings and reasonable valuations. We reviewed A-share technology sector companies that have already released 2025 earnings forecasts and found that among CITIC’s third-level industry categories, AI computing power infrastructure-related segments are broadly in a high level of business optimism, with year-over-year profit growth exceeding 50% in many cases, including network connection and tap-installed systems, PCB, cables, semiconductor equipment, integrated circuits, and other segments. Besides that, the motorcycle segment, games, and display component segments are also in a relatively high level of business optimism.

In terms of allocation, we recommend focusing on three directions: 1）domestically made semiconductor equipment that benefits from the two-storage industry’s continued capacity expansion; 2）optical modules, fiber optic cables, PCB and upstream components, and storage that remain in a healthy cycle, where there is a catch-up rally logic in passive component segments; we recommend the optical module leader with high earnings certainty and a relatively reasonable valuation level as the top pick. 3）domestically produced computing power remains persistently in short supply; focus on companies in the ByteChain and AscendChain, as well as exchange chips and server foundry services that benefit from the explosion of supernodes. At the same time, we also highlight opportunities that the iteration of multimodal models in May and June will bring.

▍ Overall cooling in the tech sector’s momentum, with trading volume diverging structurally.

A-share capital is no longer flowing into the tech sector across the board, but instead concentrating into certain companies such as semiconductor leaders. In a vertical comparison, A-share tech has shifted from the early-year “broad-based rally” into structural differentiation. In the hardware space, companies have remained relatively active, benefiting from growth in AI computing power demand and rising prices for memory chips; in the software space, performance has been relatively sluggish due to a lack of new catalysts. In a horizontal comparison, the tech sector in Hong Kong is under overall pressure, but it accounts for a larger share of overall Hang Seng Index trading volume, and its heat has also cooled somewhat.

▍In April, the tech sector may face overall headwinds and will need to seek structural opportunities.

Looking at April market performance from 2021 to 2025, the tech sector has generally faced pressure and, in most of the time across A-shares, Hong Kong stocks, and U.S. stocks, has lagged the broader market. April is also the concentrated disclosure period for annual reports and Q1 reports, meaning the market enters an earnings verification window. Based on the annual report performance previews already disclosed in the A-share market, the media and computer industry have a relatively high rate of profit-loss warnings, which may face substantial adjustment pressure. By comparison, the automobile and electronics industries have a larger proportion of positive profit alerts, implying better earnings stability. At the same time, structural opportunities are expected to emerge for industry leaders with higher earnings certainty and certain sub-sectors with strong business optimism.

▍Business optimism: Looking back at March—upstream price increases in the computing power hardware industry, earnings verification, and the domestically made computing power narrative worth watching:

Price increases remain the main storyline for the hardware industry, and we expect it to continue into Q2 and spread across multiple segments. 1）Storage, upstream of PCB, and fiber optic cables had the highest levels of business optimism in March, with all of them having large price hikes or suspending order acceptance; 2）Price increases are expected to continue into Q2, and leading companies in storage, BT resin, wafer foundry, and analog chips have all confirmed price-hike plans for Q2; 3）Price increases gradually spread into multiple segments: wafer foundry services, power devices, analog chips, optoelectronic devices, passive components, and CPUs are starting to raise prices one by one, or there may be price increases due to replenishment inventory demand.

The healthy growth and outlook for the three major segments of optical communications, storage, and PCB are being gradually validated. 1）The performance of 佰维存储 (GigaDevice) in January to February, the 2025 performance of 胜宏科技 (Shenghong Technology) and 沪电股份 (Shanghai Dian), and the FY26Q2 performance of Lumentum and Coherent all either exceeded market expectations or were close to the upper bound of expectations. 2）For the optical module, fiber optic cable, PCB, and storage leaders, the Forward PE based on the Wind consensus expectations for 2027 are generally below 20x, with the possibility of upside beyond expectations; with geopolitical volatility, segment earnings certainty is relatively high. 3）Optical module stocks have resilient price performance, with potential opportunities from adding more CSP orders in May and June. During the OFC conference, Lumentum and Coherent’s greatly improved medium- to long-term market outlook increases the visibility of optical communications market space; the probability of the sector’s 2027 and forward earnings exceeding expectations increases.

Domestically made computing power remains on a positive trajectory; watch opportunities for domestic substitution. 1）Downstream demand is in strong condition. Tencent Cloud, Alibaba Cloud, and Baidu Cloud have all raised the pricing of large models. Tencent confirmed at its 2025 earnings communication meeting that AI investment in 2026 will double to RMB 36 billion. The National Data Bureau disclosed that domestic average daily Token call volume has exceeded 140 trillion (a thousand-fold over two years). 2）Upstream domestic substitution continues. On March 24, Alibaba’s DAMO Academy released the XuanTie C950 CPU; on March 12, Inspur (曙光/ Sugon) released the 400G lossless high-speed network scaleFabric; on March 5, The Information reported that Alibaba, ByteDance, and Tencent are accelerating their shift toward domestic storage chip manufacturers. 3）The AscendChain shows standout performance. On March 20, Huawei released and demonstrated AI training and inference acceleration card Atlas 350 equipped with the new Ascend 950PR processor. The stated performance is comparable to H20 (single-card compute reaches 2.87 times that of NVIDIA’s H20, supports FP4 low-precision, and so on). Independent third-party test lab 伟测科技 achieved consolidated revenue of RMB 321 million in January and February 2026, up 79.15% year over year.

▍Tech theme outlook for April to May: Agent Harness unlocks model potential; multimodal expands the model’s boundaries.

On the Agent side, model capabilities and the Harness ecosystem mutually reinforce each other, and Agents are expected to remain a core mainline in 2026. Against the backdrop that model software engineering capabilities have already achieved initial engineered deployment, Agent Harness represented by OpenClaw, through integrating private data, building task loops, and cultivating the Skills ecosystem, significantly expands the boundary of model capabilities and drives a surge in demand for Agents. Looking ahead to 2026, as Harness feeds back into building complex task data and reinforcement learning, and as models’ long-range task capabilities improve, Agents may evolve into a “self-evolution” stage and accelerate penetration into high-frequency scenarios such as office use.

On the multimodal side, consistency and generation duration are expected to continue improving, and video generation may continue to experience a “Nano Banana2” moment. New-generation models represented by Seedance 2.0, which strengthen reference capabilities, support multimodal inputs such as images, video, and audio, significantly improving the stability and controllability of content generation, and achieving higher realism in scenarios such as complex actions and continuous-cam-shot sequences. Looking ahead, considering the shared underlying technologies between text-to-image and text-to-video, video generation is expected to experience a “Nano Banana2” moment. Multimodal understanding capabilities are expected to drive improvements in the consistency of video generation, which in turn brings longer generation durations.

Looking ahead, we expect May to June to be the breakout period for the next wave of model iteration. At that time, models such as Veo4 preview, Minimax M3, and Kimi K3 are expected to continue expanding the boundary of model intelligence.

▍Risk factors:

Risk of a pullback in overvalued stocks; risk that macroeconomic recovery progress falls short of expectations; risk that related industrial policies do not meet expectations; risk that companies’ core technologies and product R&D progress do not meet expectations; risk that AI application deployment speed falls short of expectations; risks including uncertainty from global and domestic COVID-19 due to cloud vendors’ capital expenditure not meeting expectations; and risk that weak economic growth leads to domestic government and enterprise IT spending not meeting expectations, among others.

▍Investment strategy:

Looking ahead to April, we believe that under the current macro environment and geopolitical disturbances, A-share tech is under overall pressure. Combined with the earnings season window, resilient stocks with strong Q1 earnings and reasonable valuations are still our top pick for allocation. We recommend focusing on three directions: 1）domestically made semiconductor equipment that benefits from the two-storage industry’s continued capacity expansion; 2）domestically produced computing power remains persistently in short supply—focus on ByteChain and AscendChain companies, as well as exchange chips and server foundry services that benefit from the explosion of supernodes; 3）optical modules, fiber optic cables, PCB and upstream components, and storage that remain in a healthy cycle, where passive component segments have a catch-up rally logic—our top pick is the optical module leader with high earnings certainty and a relatively reasonable valuation level. We also note that the OFC conference will improve the visibility of the optical communications market space, and the sector’s 2027 earnings forecasts may be upgraded. We also watch the possibility of overseas adding orders in mid-year. At the same time, we also highlight opportunities that the iteration of multimodal models in May and June will bring.

（Source: People’s Finance News）