The Zhitong Finance App learned that Galaxy Securities released a research report saying that the rapid iteration of 100G/200G->400G->800G optical modules is expected to continue to rise in product volume and price, gradually shifting from expectations to basic performance implementation. Demand orders for overseas high-speed optical modules are expected to gradually increase. Over the long term, domestic intelligent computing centers will advance, ushering in a period of vigorous development of the optical module industry chain. Technical barriers related to optical communication are high, and the product has a high moat. The higher the performance of high-end products, the more obvious the profitability concentration of leading companies is expected to increase. Generally speaking, central enterprises lead the integrated development of the AI+ industry and promote the extension and expansion of “5G+” to “AI+”. Optical communications are rapidly iterating along with the wave of the “AI+” era, bringing high prosperity to the industry and strong sustainability, and the communications base is expected to continue to strengthen.

Incident: Recently, the Mobile World Congress MWC was held in Barcelona, Spain. The AI-RAN Alliance (AI-RAN Alliance) was established at the conference, led by Nvidia. The organization has 11 initial members, including semiconductor, telecommunications, and software giants such as Samsung, ARM, Ericsson, Microsoft, Nokia, Nvidia, and SoftBank. The new alliance focuses on cutting-edge technology research and development, and aims to integrate AI into wireless cellular technology and further advance the development of radio access network (RAN) technology and future 6G mobile networks.

Galaxy Securities's views are as follows:

AI empowers the development and upgrading of 5G->5.5G->6G, and the evolution of new standards catalyzes technology upgrades and high traffic growth.

As operators transform and upgrade network infrastructure, they gradually expand from cloud-oriented upgrades to the use of artificial intelligence tools to bring automation and intelligence to base station deployments, improving the performance and efficiency of wireless access networks. AI-RAN integration mainly reflects the following aspects: 1) Using AI to improve RAN capabilities, thereby improving the efficiency of wireless spectrum usage. 2) Integrate AI and RAN processes, use network infrastructure more effectively, and create new revenue opportunities driven by AI. 3) From the edge computing side, AI services are deployed at the edge of the network to improve operational efficiency and provide new services to mobile users. Overall, the introduction of artificial intelligence technology into wireless communication brings new management models such as automated management of frequency bands and traffic, real-time analysis of user data and network load, and prediction of network status. With the continuous support of AI technology, it has brought greater momentum to innovation in the communications industry.

Driven by operators and based on optical modules, ICT growth space is opened up, and technology integration drives new opportunities for the industry.

Along with the development of China's digital economy, new breakthroughs have been achieved in industrial development through scientific and technological innovation. By the end of 2023, the number of 5G base stations reached 3.377 million, accounting for nearly 1/3 of the number of mobile phone base stations. On average, there were 24 5G base stations per 10,000 people, an increase of 7.6 pct over the end of the previous year, maintaining global leadership. 5G customized base stations and 5G lightweight technology achieve commercial deployment. Artificial intelligence infrastructure systems are continuously being built, new AI application models are being explored, and a comprehensive transformation to an “AI+” strategy is being carried out. AI and big data technology are introduced in all aspects of network operation, such as network planning, construction, maintenance, and optimization, to improve the level of network intelligence, reduce network failure rate, save base station energy consumption, optimize signal coverage, and continuously promote the integrated development of “cloud network intelligence”. As the cornerstone of linking AI and communication, optical modules are leading a new round of technological revolution and upgrading. Rapid iteration of 100G/200G->400G->800G is expected to continue to increase in product volume and price, gradually shifting from expectations to basic performance implementation. Demand orders for overseas high-speed optical modules are expected to gradually increase. Over the long term, domestic intelligent computing centers will advance, ushering in a period of vigorous development of the optical module industry chain. Technical barriers related to optical communication are high, and the product has a high moat. The higher the performance of high-end products, the more obvious the profitability concentration of leading companies is expected to increase. Generally speaking, central enterprises lead the integrated development of the AI+ industry and promote the extension and expansion of “5G+” to “AI+”. Optical communications are rapidly iterating along with the wave of the “AI+” era, bringing high prosperity to the industry and strong sustainability, and the communications base is expected to continue to strengthen.

Investment suggestions: In the context of the continuous strengthening of policies such as the renewal of the AI industry and the integration of new AI applications, the new infrastructure of the digital economy is expected to consolidate and help upgrade computing power networks. Combining high prosperity and undervaluation is a key direction for stock selection. It is recommended to focus on:

New infrastructure for the digital economy: Telecom operators that are optimistic about network infrastructure upgrades and AI central enterprises leading the new space: China Mobile (600941.SH), China Telecom (601728.SH), China Unicom (600050.SH); optical module leader Zhongji Xuchuang (300308.SZ), Huagong Technology (000988.SZ), Tianfu Communications (300394.SZ), etc.; intelligent computing construction+operation and maintenance leader Runjian Co., Ltd. (002929.SZ), etc.

Risk warning: Uncertain risk of domestic and foreign policy and technical friction; risk of AIGC application promotion falling short of expectations; risk of 5/6G large-scale commercial promotion falling short of expectations, etc.