The overall mid-year performance of the internet sector has demonstrated relative stability, with companies focused on AI showing strong revenue and profit growth. AI has clearly influenced the advertising business scenarios of internet giants, as well as cloud computing scenarios and corporate efficiency.

According to the Zhitong Finance App, Guosen Securities has released a research report stating that the overall mid-year performance of the internet sector has shown relatively stable results, with companies focused on AI experiencing strong revenue and profit growth. AI has demonstrated a significant impact on the advertising business scenarios, cloud computing environments, and corporate efficiency of internet giants. This is particularly reflected in Tencent’s advertising maintaining a growth rate of 20% this quarter, and Alibaba Cloud’s growth rate accelerating to 26% quarter-on-quarter, alongside notable improvements in operational efficiency for Tencent, Tencent Music, and Kuaishou. With the continued rise of technology stocks in the US and A-shares, the firm believes that the Hang Seng Technology Index is currently undervalued globally. As AI drives the mid-year performance of various companies, they continue to recommend Tencent Holdings (00700), Alibaba-W (09988), Kuaishou-W (01024), Meitu (01357), as well as Tencent Music-SW (01698) and NetEase Cloud Music (09899).

Key points from Guosen Securities are as follows:

August Market Review

In August, the Hang Seng Technology Index rose by 4.1% for the month. During the same period, the Nasdaq Internet Index also recorded an increase, with a monthly growth rate of 2.7%. In terms of individual stocks, most internet stocks saw price increases. In the Hong Kong stock market, the top three performers for the month were China Literature Group, JD.com Health, and Weimob Group, while in the US market, iQIYI, Boss Zhipin, and Sea were the top three performers. In terms of price-to-earnings ratios, the valuation of the Hang Seng Technology Index has rebounded: as of September 2, 2025, the PE-TTM for the Hang Seng Technology Index is 21.94x, positioned at the 25.2% percentile since the index’s inception.

Artificial Intelligence Developments

1) Google: Launched BlenderFusion and released Gemini 2.5 FlashImage; 2) OpenAI: Officially released GPT-5 and introduced a new voice model, GPT-Realtime; 3) Meta: Restructured its AI department and obtained authorization from Midjourney; 4) Microsoft: Introduced gpt-oss and released a self-developed AI model; 5) NVIDIA: May suspend production of the H20 chip; 6) DeepSeek: Officially released DeepSeek-V3.1; 7) Tencent: Launched the art creation tool VISVISE and open-sourced Youtu-agent; 8) Alibaba: Released Qwen3-4B and plans to spin off Zebra AI for independent listing in Hong Kong; 9) ByteDance: Released the open-source model Seed-OSS-36B and launched a digital human generation model; 10) Baidu: Baidu AI search leads in monthly active users in China; 11) Dark Side of the Moon: Kimi K2 new model ranks first in daily downloads on Hugging Face; 12) Amap: Released the world’s first AI-native intelligent agent for maps; 13) Xiaomi: Reached a cooperation agreement with ByteDance.

Trends in the Internet Industry

1) Gaming: In August, domestic game licenses were issued, with NetEase’s “World of Legends: Myriad Realms” and other games receiving approval, and Tencent’s new game “Valorant: Source Energy Operation” officially launched; 2) Fintech: In July, the reserve funds of payment institutions decreased by 2.4% year-on-year, and WeChat Fenfu launched a “loan” feature; 3) Local Services: Taobao’s Flash Purchase exceeded transactions at over 300,000 restaurants on the platform during the Autumn Festival, and Meituan Keeta launched in Qatar; 4) E-commerce: Taobao’s premium membership was launched, and e-commerce became a primary entry point for Xiaohongshu; 5) Short Videos: Douyin’s group chat feature was upgraded, and video accounts launched live streaming with multilingual simultaneous subtitles.

Risk Factors

Risks include policy risks, the deterioration of competition in the short video industry, the risk of macroeconomic downturns leading to lower-than-expected growth in advertising revenue, and the risks associated with game companies not launching new products on schedule or their performance not meeting expectations.