Markets experienced consolidation today (June 23rd), with major A-share indices trending lower. After a six-day winning streak, the Software Development Index saw its first pullback, potentially presenting a buying opportunity on dips for funds.

Among popular ETFs, the HuaBao Software Development ETF (159036), which passively tracks the Software Development Index, followed the market lower. Its intraday price is down 1.87%, and the daily K-line may have stepped back from its recent upward trajectory.

Regarding constituent stocks, shares in the vertical application software sector notably led the gains. Geer Software Co., Ltd. led the advance, rising over 4%. Keda Industrial Co., Ltd., Airong Software Co., Ltd., and Digital Authentication Co., Ltd. gained more than 3%. Stocks like Sitterqi Technology Co., Ltd., Fortune Trend Technology Co., Ltd., and Fangzhi Technology Co., Ltd. also followed with gains. On the other hand, Suochen Tech Co., Ltd. fell over 8%, while Haitian Ruisheng Technology Co., Ltd. and Geling Shenkong Technology Co., Ltd. dropped more than 7%, leading the declines and weighing on the index performance.

On the news front, the ByteDance Developer Conference is scheduled for June 23rd-24th. It is anticipated that ByteDance will announce significant updates to several of its AI application products. These may include updates to the Doubao large language model, the SEEDANCE video model, the potential implementation of AGENT technology, and the rollout of AI applications in vertical sectors such as e-commerce and office productivity. Surprises are expected, and ByteDance has explicitly stated it will announce fee-based services related to Doubao.

China Merchants Securities pointed out that the ByteDance Developer Conference is packed with highlights, suggesting a potential inflection point for the commercialization of AI applications. It can be said that this conference represents a crucial battle for the commercialization of ByteDance's, and indeed the entire AI application industry's, offerings. This year could very well mark the official beginning of the token-based commercialization era for AI.

The institution stated that a key reason for their significant focus on AI applications and commercialization is the ever-increasing capital expenditure in AI. As AI infrastructure becomes more mature, numerous tech giants have recognized the urgency of commercializing AI. Whether domestic players like ByteDance, Tencent, Alibaba, Zhipu AI, MiniMax, and Kimi, or international firms like Meta, Google, Amazon, OpenAI, Microsoft, and Anthropic, all are actively and rapidly exploring AI commercialization. Areas like Anthropic's AI coding and ByteDance's SD multimodal models are expected to see sustained, rapid growth and are gradually forming a positive feedback loop. It can be argued that in this new phase of AI development, AI applications must progressively take center stage.

Amid the overarching trend of AI reshaping software, the value of vertical "AI + Software" applications is becoming prominent. Compared to the randomness and non-standardization of answers from general-purpose large models, AI applications in vertical fields like finance, healthcare, and e-commerce can provide more precise, stable, and practical solutions through preset scenarios, optimized prompts, and training on proprietary data. The deep integration of "AI + Software" is creating tangible value across various industries.

Data shows that the constituent stocks of the HuaBao Software Development ETF (159036) encompass companies in areas such as AI+Finance, AI+Healthcare, AI+Office, AI+Education, AI+Information Security, and AI+Government Affairs. As of the end of May, the weight of stocks with AI application concepts exceeded 47%.

In terms of valuation, as of June 22nd, the price-to-earnings ratio (PE TTM) of the target index (Software Development Index) for the HuaBao Software Development ETF (159036) was 181.31 times, sitting at the 24.1 percentile since its listing. This indicates relatively high valuation attractiveness and a significant margin of safety.

The End of Hardware Could Be the Dawn for Software

Throughout historical technological revolutions, profits have consistently flowed from hardware to applications. The end of the hardware cycle may herald a springtime for software. Earlier this year, influenced by the narrative of "large models consuming software," the AI application sector experienced significant valuation discounts compared to computing power and model layers, making the software segment a relatively undervalued area within the AI industry chain with high valuation appeal and safety margins. Coupled with AI empowerment and domestic software innovation drivers, the software development sector is poised to rise with the trend.

The software industry as a whole is in an upward cycle, but it is uncertain which specific sub-sector or individual stock will outperform. Rather than betting on a single niche, investors might consider covering the entire industry through the target index (Software Development Index) of the HuaBao Software Development ETF (159036). This index encompasses 112 constituent stocks, offering a more comprehensive and balanced portfolio approach to potentially capture the beta returns of industry development.

The target index (Software Development Index) of the HuaBao Software Development ETF (159036) includes various hot concepts. As of the end of May, the weight of constituent stocks with exposure to AI applications, cloud computing, domestic software innovation industry, fintech, cybersecurity, and the HarmonyOS ecosystem was 46.58%, 43.50%, 42.36%, 29.90%, 15.72%, and 14.29%, respectively.

Note: As of the listing of the HuaBao Software Development ETF (159036) on June 11th, the ETF's latest size was 4 billion yuan. Among the 2 ETFs in the entire market tracking the same target index, it is the largest by size.

ETF fee-related note: Intraday trading fees are subject to the actual charges by securities firms. When investors subscribe for or redeem fund shares, subscription/redemption agents may charge a commission not exceeding 0.3%. The HuaBao Software Development ETF does not charge a sales service fee.