Wanlian Securities released a research report stating that the Shenwan Electronics sector outperformed the CSI 300 index in 2025, with valuations slightly above the recent average. Performance in the first three quarters of 2025 was positive, showing an improvement in profitability. Looking ahead to 2026, the firm recommends seizing investment opportunities arising from AI computing infrastructure development and end-device innovation.

Regarding AI computing infrastructure, the ongoing AI wave continues to fuel strong demand for key hardware components. It is advised to focus on high-growth sub-sectors like storage and PCB, where robust demand and accelerated capital expenditure present investment opportunities. For AI device innovation, products such as AI phones, AI PCs, and AI glasses are expected to increasingly penetrate the traditional consumer electronics market. Leading brand manufacturers are actively developing AI-enabled devices and enhancing application ecosystems, which is anticipated to create new market demand, drive steady shipment growth, and boost requirements across the supply chain.

Wanlian Securities' key views are as follows:

AI Computing Infrastructure: Computing build-out is still in its early stages, with the prosperous cycle for PCB and storage expected to continue. 1) PCB: Accelerated computing development is driving technological upgrades in AI PCBs, increasing demand for high-end products like high-layer count boards and HDI. China leads globally in PCB output value, and domestic mainstream PCB manufacturers are accelerating capital expenditure to expand capacity for high-end PCBs. In upstream materials, copper-clad laminates are poised to benefit from PCB capacity expansion. Recent price increases for CCL products, driven by rising raw material costs and strong demand, are expected to enhance corporate profitability. Among upstream equipment, drilling and exposure equipment hold significant value and are projected to experience high growth rates. 2) Storage: The storage chip market is anticipated to enter a new growth cycle driven by AI. Accelerated capital expenditure by global cloud service providers is likely to boost demand for servers and upstream components, with the proportion of server storage expected to increase further. Currently, DRAM and NAND Flash dominate the storage market share. Major storage manufacturers are shifting capacity planning towards high-end segments like HBM, optimizing the supply-demand balance for certain DRAM and NAND products and leading to sustained price increases for related items. The storage market is highly concentrated among top players like Samsung, SK Hynix, and Micron. During this growth cycle, capital expenditure is expected to rise, stimulating demand for upstream sectors like semiconductor equipment.

AI Device Innovation: Accelerated adoption of on-device AI leads to diverse terminal innovations. 1) AI Phones/PCs: Global smartphone shipment growth slowed in 2025, with leading manufacturers gaining market share and concentration increasing slightly. The PC market saw steady shipment growth in 2025, with the top five players holding over 70% market share, a figure that rose modestly. Empowered by AI, the penetration rate of AI phones is increasing, offering significant potential for shipment growth. AI PC penetration is also expected to rise steadily, potentially exceeding 50% by 2026. Rising average selling prices for smartphones mean high-end products like AI phones are better positioned to pass on cost pressures and enhance market competitiveness. Regarding new product releases and ecosystem development, the collaboration between Apple and Google suggests the Gemini model could significantly power Apple's next-generation AI features. ByteDance and ZTE have partnered to launch the first native AI phone. Alibaba's Tongyi Qianwen is being integrated into multiple apps within the Alibaba ecosystem, and internet companies with comprehensive ecosystem layouts are expected to further promote the implementation of on-device AI agent applications. 2) AI Glasses: In terms of functionality, current AI glasses features include audio, photography, and display capabilities. Shipments are growing steadily, potentially creating an incremental market for consumer terminals. Cost-wise, optics, chips, sensors, and storage account for a large proportion of expenses. From a supply chain perspective, China has achieved full-chain coverage for AI glasses production, manufacturing over 70% of global XR products. The supply chain system encompasses all segments, including audio components, display devices, mid-stream structural parts, original equipment manufacturing, and storage chips. In the competitive landscape for finished products, Meta leads the AI glasses market, holding a 73% share in the first half of 2025, primarily driven by significant shipment growth of its Ray-Ban Meta AI glasses.

Investment Recommendations: The AI wave continues to advance, with computing infrastructure development still burgeoning. Demand remains strong for key computing hardware components, and sectors like storage and PCB are in a period of cyclical expansion. Concurrently, AI phones, AI PCs, and AI glasses are expected to rapidly penetrate the traditional consumer electronics market. As major manufacturers continue to launch new products and refine application ecosystems, the market size for innovative AI devices is projected to grow steadily. 1) Storage: Focus on performance growth at major storage manufacturers during the growth cycle and profit recovery for storage module makers amid rising product prices. Investment opportunities also exist in upstream semiconductor equipment demand driven by increased capital expenditure. 2) PCB: Focus on leading PCB manufacturers with strategic positioning in high-end segments like HDI and multi-layer boards. As mainstream PCB makers accelerate capacity expansion, demand for upstream equipment and materials is expected to rise. Attention should also be paid to leading companies in copper-clad laminate materials, and drilling and exposure equipment. 3) Innovative AI Devices: For AI phones, monitor leading manufacturers like Apple, where new product releases can boost brand shipments and stimulate supply chain demand, alongside opportunities arising from the emergence of killer AI applications. For AI PCs, focus on OEMs with strategic layouts in the AI PC space and leading component suppliers within the global PC supply chain. For AI glasses, watch leading players like Meta, whose new product launches can drive shipment growth and create related supply chain investment opportunities.

Risk Factors: Escalating US-China technology friction; slower-than-expected development of AI applications; delays in breakthroughs of domestic technologies; weaker-than-anticipated downstream end-market demand; intensifying market competition.