Data shows that since early 2025, the computer sector has risen by 18%, ranking 12th among all industries. Driven by both fundamentals and thematic investments, the main themes include AI computing power, embodied intelligence, and AI applications. Shenwan Hongyuan's Huang Zhonghuang team released its 2026 strategy for the computer sector, emphasizing that computing power accumulates gradually while applications ride the momentum.
The report notes that the sector's performance has been supported by solid fundamentals and AI-driven catalysts. The release of DeepSeek earlier this year spurred gains across the AI industry chain, representing a balance between model accessibility, performance, and cost efficiency. However, from March to early September, AI application breakthroughs fell short of expectations, leading to subdued performance. Domestic AI progress lagged, compounded by tariff impacts, shifting focus back to fundamental valuations.
Post-May, annual reports confirmed stabilization in sector fundamentals, with some leading companies delivering robust earnings, driving valuations higher alongside the broader market. After September, performance diverged within the sector, with investors favoring high-quality stocks amid overall stagnation.
Fundamentally, the sector saw a rebound in revenue and net profit in the first three quarters of 2025, with net profit growth outpacing revenue due to cost-cutting measures implemented in 2024. Valuation-wise, the computer sector's TTM P/E ratio stood at 85.4x as of December 2, 2025, at the 90.60% historical percentile, while P/S (3.6x) and P/CF (46.6x) ratios remained below peak levels, suggesting room for expansion. Shenwan Hongyuan expects macroeconomic recovery and AI-driven profitability improvements to further boost valuations in 2026.
**AI Models**: The gap between Chinese and U.S. models is narrowing, shifting from pure performance gains to commercialization. Global model iteration slowed in 2025, but China is catching up rapidly, with breakthroughs expected in long-context processing, multimodal capabilities, and efficiency-cost balance by 2026.
**Computing Power**: Key trends include super-node advancements, AI infrastructure growth, and quantum computing commercialization. Domestic players are gaining an edge through engineering differentiation.
**Applications**: Industry expertise remains a moat, with software entering an optimal investment phase. AI revenue contributions exceeding 10% signal a technological inflection point. Promising areas include robotics, AI agents, and AI-driven marketing, office, and finance solutions.
**Top Picks**: - **Digital Economy Leaders**: Hikvision (002415.SZ), Kingsoft Office, Hundsun Electronics, Supcon Technology, Desay SV, Venusense, iFlytek, Empyrean Technology, Tonghuashun, Glodon, Newland. - **AIGC Applications**: Kingsoft Office (688111.SH), Digiwin, Tax Friend, Tonghuashun, East Money, ArcSoft, Wondershare, Runda Medical, iFlytek. - **AIGC Computing Power**: Inspur (000977.SZ), Hygon, Digital China, Sugon, Cambricon. - **Data Elements**: Tax Friend (603171.SH), Boss Software, GRG Banking, TRS, Longan Silver. - **HK Stocks**: Chinasoft International (00354), Kingdee International (00268), TravelSky Technology (00696), Lenovo Group (00992).