The Zhitong Finance App learned that Huatai Securities released a research report saying that looking back from the beginning of 2023 to now, the cumulative increase in the Communications (Shenwan) Index has clearly shown excess profit compared to the Shanghai and Shenzhen 300. Among them, sectors such as optical communications and telecom operators have all experienced good gains, while sectors such as satellite Internet, 5.5G, and computing power leasing have also shown rotational performance. Looking ahead to 2024, the bank is optimistic about the “integration” (digital economy) and “two wings” (two major emerging industry trends: AI and satellite Internet) of the communications industry.

The bank suggests: (1) in the context of the continued deepening of the digital economy, focus on development opportunities for telecom operators, industrial Internet and other sectors; (2) the trend of increasing investment on the global AI computing power side is clear, opening up demand for hardware such as optical modules and switches; (3) the 6G era is getting closer, and China's satellite Internet is expected to accelerate construction. In addition, focus on long-term development opportunities for base station-side RF devices, antennas and other industries.

Huatai Securities's views are as follows:

“Integrated” digital economy: China's digital development continues to advance, focusing on operators/industrial Internet

Looking ahead to 2024, with the deepening development of the digital economy, we believe that telecom operators and the industrial Internet are two major sectors worth paying attention to in the digital China industry map: 1) We judge that the role played by telecom operators in the digital economy is expected to gradually change from “communication channels” to “industrial chain chain length”. In the long run, telecom operators are expected to use their unique advantages as technology central enterprises to become gathering places for digital industry resources, and their strategic position in digital transformation will continue to improve; 2) New industrialization is expected to become one of the important elements of China's digital economy. We believe that under the trend of deep integration and development of industrialization and digital technology, we recommend focusing on development opportunities in sectors such as the industrial Internet. Furthermore, domestic software and hardware companies with independent research and development capabilities are expected to gradually replace the share of importers and achieve rapid development.

“Two Wings” AI: Global Computing Power Investments Increase, Optical Module/Switch/IoT Modules Welcome New Opportunities

We believe that with the rapid iteration of the AI industry, industry trends will continue to be clear. Overseas, as investment on the AI computing power side continues to increase, 400G/800G optical modules are one of the core infrastructure of large-scale GPU training clusters, and the demand side is expected to rise rapidly in 2024; in the future, with the continuous upgrading and iteration of GPUs, 1.6T optical modules are also expected to be introduced at an accelerated pace, and leading domestic optical module manufacturers are expected to fully enjoy the dividends of the boom in overseas markets; on the domestic side, we believe that AI computing power side investment is also expected to start in 2024, spawning the release of demand for optical modules, switches, servers and other related links. Furthermore, as AI computing power is expected to further penetrate from the cloud to the edge side, edge computing is expected to usher in development opportunities based on advantages such as low latency, low cost, privacy, and security, injecting new impetus into industries such as IoT modules.

“Two Wings” Satellite Internet: Embracing the 5.5G/6G and Satellite Internet Era

As the 5.5G/6G era gradually approaches, we believe: 1) Under the demand for greater communication bandwidth, large-scale MIMO in the 5.5G/6G period is expected to drive a further increase in demand for components such as antennas, radio frequency, and PCBs on the base station side, bringing development opportunities to relevant industry chain manufacturers. 2) Satellite-terrestrial integrated networks are expected to continue to advance, promoting satellite Internet or accelerating development. China's private commercial rocket technology continues to iterate. As many new types of rockets make their first flight, it is expected that filling the satellite Internet capacity gap will rapidly develop; at the same time, the national team and private enterprises will join forces with satellite manufacturing to achieve rapid mass production of satellites at low cost; the demand side is also constantly emerging. Cars and mobile phones on the satellite Internet are expected to become a trend, opening up a broad market space.

Risk warning: trade friction between China and the US has intensified; cloud vendors' capital expenditure has fallen short of expectations; and 5G development has fallen short of expectations.