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

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CITIC Securities Research | By Xu Yingbo, Lian Yixi, Xu Tao, Li Heran, Yang Zeyuan

Hu Yeqianwen, Chen Junyun, Gao Feixiang, Wang Ziyuan, Yang Haotian

The performance of the technology sector in March shows that computing power remains in an overall shortage, with price increases continuously spreading to areas such as cloud services and CPUs. However, due to macro disruptions and geopolitical shocks, the sector’s valuations have been hit significantly. Looking ahead to April, on one hand, historically after April enters the earnings season, the market is often in a period where risk appetite contracts; on the other hand, it is still difficult to judge how long the current geopolitical disruptions will last. Therefore, we recommend focusing on resilient stocks with strong expected performance in the 2026 Q1 results and valuations that are reasonable. We reviewed A-share technology sector companies that have already disclosed 2025 earnings forecasts, and found that among CITIC’s third-level industries, AI computing power infrastructure-related segments are generally in a high level of enthusiasm. Segments with more than 50% year-over-year growth in profits include network interconnection and tower installation, PCB, cables, semiconductor equipment, and integrated circuits, among others. In addition, the motorcycle segment, games, and display passive components are also in relatively high levels of enthusiasm.

In terms of allocation, we suggest focusing on three directions: 1) domestic semiconductor equipment that benefits from ongoing capacity expansions by “two storages” (two memory makers); 2) optical modules, fiber optic cables, PCBs, and upstream, storage—segments with sustained high enthusiasm and also have a “catch-up rally” logic for passive component areas. We recommend leading optical module companies with high earnings certainty as the top choice. 3) domestic computing power is still continuously in short supply—watch Byte Chain and Ascend Chain companies, exchange chips and server contract manufacturing that benefit from a super-node breakout, and related areas. We also note the opportunities that may be brought by multi-modal model iterations in May and June.

▍ Technology sector overall heat cools off, and trading volume diverges structurally.

A-share funds are no longer flowing broadly into the technology sector; instead, they are concentrating on certain companies such as semiconductor leaders. In a vertical comparison, the A-share technology sector has moved from a broad-based rally at the beginning of the year to structural divergence. Within hardware, buoyed by growth in AI computing power demand and rising prices of storage chips, it remains relatively active. Within software, due to a lack of new catalysts, it has performed relatively poorly. In a horizontal comparison, the Hong Kong technology sector as a whole is under pressure, but its share of trading volume in the overall Hang Seng Index is relatively large, and its heat has also eased.

▍ The technology sector in April may face overall pressure, so we need to seek structural opportunities.

Based on April market performance from 2021 to 2025, the technology sector generally faces pressure and, in most of the time across A-shares, Hong Kong stocks, and US stocks, it underperforms the broad market index. April coincides with a concentrated disclosure period for annual reports and Q1 reports, putting the market into an earnings validation window. From the annual report earnings forecasts already disclosed in the A-share market, the media and computer industries have relatively high levels of loss-warning, and may face significant adjustment pressure. By comparison, the automobile and electronics industries have a larger proportion of positive warnings and better earnings stability. Meanwhile, structural opportunities are expected to emerge in industry leaders with high earnings certainty and in certain sub-sectors with high levels of enthusiasm.

▍ Enthusiasm level: Looking back at March, upstream price increases in the computing power hardware industry, earnings validation, and the domestic computing power narrative are worth paying attention to:

Price increases remain the main storyline for the hardware industry, and we expect them to continue into Q2 and spread to multiple links. 1) Storage, upstream PCB, and fiber optic cables still had the highest enthusiasm in March—each has either substantially raised quotation prices or stopped accepting orders. 2) Price increases are expected to continue into Q2; leading companies in storage, BT resin, wafer foundry, and analog chips are all set to implement Q2 price hikes. 3) Price increases gradually spread to multiple links: wafer foundry, power devices, analog chips, optoelectronic devices, passive components, and CPUs that still have AI exposure are beginning to increase prices, or are doing so due to replenishment demand.

The steady growth in enthusiasm for three major links—optical communications, storage, and PCB—is being gradually validated. 1) Avix Storage’s 1–2 month performance, Shenghong Technology and Huidian Shares’ 2025 performance, as well as Lumentum and Coherent’s FY26 Q2 performance all exceeded market expectations or were close to the upper bound of expectations. 2) For optical modules, fiber optic cables, PCB, and storage, the Forward PE based on Wind consensus expectations for leading companies in 2027 are generally below 20x, and there is also potential for upside beyond expectations; under geopolitical volatility, the sector’s earnings certainty is higher. 3) Optical module stocks have resilient price performance; there is an opportunity for additional CSP orders in May and June. During the OFC conference, Lumentum and Coherent’s long-term market outlook significantly improves the visibility of the optical communications market space, and the probability of the sector’s 2027 and forward earnings exceeding expectations increases.

Domestic computing power continues to improve; watch for opportunities from domestic substitution. 1) Downstream demand is highly enthusiastic. Tencent Cloud, Alibaba Cloud, and Baidu Cloud have all raised the prices of large models. Tencent confirmed at its 2025 earnings communication meeting that AI investment will double in 2026 to 36 billion yuan. The National Data Bureau disclosed that domestic daily Token call volume has surpassed 140 trillion (a thousand-fold increase over two years). 2) Upstream domestic substitution is ongoing. On March 24, Alibaba’s DAMO Academy released the XuanTie C950 CPU; on March 12, Inspur Supercomputing? (CAS?) (中科曙光) released a 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 Ascend Chain has shown standout performance. On March 20, Huawei released and exhibited an AI training and inference acceleration card Atlas 350, featuring the new Ascend 950PR processor. The stated performance is comparable to the H20 (single-card computing power reaches 2.87x that of Nvidia’s H20, supports FP4 low-precision, and so on). Independent third-party test house Weicet Technology achieved consolidated revenue of 321 million yuan in January–February 2026, up 79.15% year over year.

▍ Forward look on technology themes for April–May: Agent Harness releases model potential, and multi-modal expands the model’s boundaries.

On the Agent side, model capabilities and the Harness ecosystem are mutually reinforcing, and Agents are likely to remain a core mainline in 2026. With a backdrop where model software engineering capabilities have already achieved initial engineered deployment, Agent Harness represented by OpenClaw significantly amplifies the model’s capability boundaries by integrating private data, building task loops, and cultivating the Skills ecosystem. It also drives a surge in Agent demand. Looking to 2026, as Harness provides feedback on constructing complex task data and reinforcement learning, and as long-range task capabilities of models improve, Agents are expected to evolve toward a “self-evolution” stage and accelerate penetration into high-frequency scenarios such as office productivity.

On the multi-modal side, consistency and generation duration are expected to continue to improve, and video generation is expected to keep迎来 a “Nano Banana2” moment. New-generation models represented by Seedance 2.0 strengthen reference capabilities. They support multi-modal inputs such as images, video, and audio, significantly improving the stability and controllability of content generation, and achieving higher realism in scenarios like complex actions and continuous camera moves. 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 as well. Multi-modal understanding capabilities are expected to drive improvements in video generation consistency, which in turn brings longer generation duration.

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

▍ Risk factors:

Risk of a pullback in overvalued stocks; risk that macroeconomic recovery progress is slower than expected; risk that related industrial policies do not meet expectations; risk that corporate core technologies and product R&D progress do not meet expectations; risk that AI application rollout speed does not meet expectations; risks such as cloud vendors’ capital expenditures not meeting expectations, as well as global and domestic epidemic uncertainties; risk that weak macroeconomic growth leads to domestic government and enterprise IT spending not meeting expectations, and other risks.

▍ Investment strategy:

Looking ahead to April, we believe that under the current macro environment and geopolitical disruptions, the A-share technology sector is under overall pressure. Coupled with the earnings season window, resilient stocks with strong 1Q earnings and reasonable valuations remain the top preferred allocation choice. We suggest focusing on three directions: 1) domestic semiconductor equipment that benefits from ongoing capacity expansions by the “two storages”; 2) domestic computing power still continuously in shortage—focus on Byte Chain and Ascend Chain companies, exchange chips and server contract manufacturing that benefit from a super-node breakout, and related links; 3) optical modules, fiber optic cables, PCB and upstream, storage with sustained high enthusiasm—passive component segments that have a catch-up rally logic. We recommend leading optical module companies with high earnings certainty and relatively reasonable valuation levels as the first choice. In addition, the OFC conference is expected to improve the visibility of the optical communications market space, and the sector’s 2027 earnings forecast may be revised upward. Also watch for the possibility of overseas incremental orders around mid-year. We also note the opportunities that may be brought by multi-modal model iterations in May and June.

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