Bank of America notes that China's AI industry experienced a pivotal turning point this week. This is no longer merely an arms race focused on technical specifications, but a tangible surge in commercial deployment and actual demand. As major players like ByteDance and Knowledge Atlas intensively release their next-generation large language models, particularly with breakthroughs in video generation capabilities, the demand for computing power is growing exponentially.

According to analysis, Bank of America stated in a recent report dated February 12th that for investors, the most direct signal is not the technological prowess of the models, but price increases. From Knowledge Atlas significantly raising its API prices to public cloud provider UCloud increasing prices across its product lines, a clear message is being sent to the market: the multi-year price war in cloud computing has ended, and pricing power is shifting back to sellers.

Bank of America Securities explicitly stated that this trend will directly benefit China's data center sector. Against the backdrop of a supply-demand imbalance for computing power, IDC leasing prices are expected to stabilize and rise. In this context, VNET Group, GDS Holdings, and Kingsoft Cloud Holdings Ltd are poised to be the biggest beneficiaries. This represents a re-rating of the infrastructure sector; investors should recognize that the large-scale inference and training demands of AI are reshaping the valuation logic for IDCs.

Video generation models are igniting computing power demand, with ByteDance and Knowledge Atlas leading the charge. Progress in China's AI field this week has been rapid, with major vendors competing for technological leadership. The Bank of America Securities report emphasized that ByteDance's release of Seedance 2.0 is not just an iteration; it demonstrates advanced multimodal capabilities, particularly next-generation video generation technology.

Simultaneously, Knowledge Atlas launched its flagship model GLM-5, achieving significant enhancements in programming and reasoning performance. DeepSeek updated its model to support a longer context window and a more recent knowledge base, while MiniMax released its M2.5 version for testing on its overseas platform.

These model releases are more than just press announcements; they are directly creating a massive computing power gap. The report cites data from the co-founder of Fal.ai, pointing out that the computational power required to generate a 5-second video clip (24 frames per second) is approximately 120,000 times greater than that needed to generate 200 tokens (about 150 characters) of text. This staggering figure implies that if ByteDance's Seedance 2.0 successfully drives widespread adoption of video generation, the market's demand for token consumption and computing power infrastructure will leap by an order of magnitude. This is a fundamental positive for IDC providers with substantial resource reserves.

End of the price war: Strong demand drives price increases for cloud services and model APIs. The market's favorite catalyst is often a "price increase." The report astutely captures a structural shift in industry pricing dynamics. Due to excessively strong demand, Knowledge Atlas has raised prices for its GLM code plan by at least 30% for new users. In the public cloud sector, UCloud announced price increases for all products and services for renewals and new orders.

This phenomenon is not isolated but follows a global trend. Bank of America Securities noted that after global peers like Google Cloud and AWS raised prices for some services, Chinese Cloud Service Providers (CSPs) are beginning to follow suit.

Two main factors are driving this trend: first, rising costs of hardware components such as memory, and second, a reversal in the supply-demand relationship caused by the surge in AI workloads. For public cloud vendors, robust AI demand supports the price structure, allowing them to pass on increased hardware costs downstream. For the IDC industry, price increases by cloud vendors will further stabilize IDC rental price trends, not only signaling the bottoming out of the sector but also heralding the start of a profit margin recovery cycle.

Bullish on VNET Group and GDS Holdings: Re-rating the value of infrastructure leaders. Based on the above industry logic, Bank of America Securities has re-evaluated related stocks. The report views VNET Group as a direct beneficiary of ByteDance's AI expenditures. Given VNET Group's ample capacity reserves in Ulanqab and its role as a key IDC supplier to ByteDance, if video generation applications explode, VNET Group will be a primary beneficiary.

Bank of America Securities raised its target price for VNET Group from $15.1 to $17.9, increasing the valuation multiple to 15x forward 12-month EV/EBITDA to reflect its accelerated revenue growth prospects.

For GDS Holdings, the report similarly maintains a "Buy" rating and raised its target price from $50.0 / HK$49.1 to $56.7 / HK$55.6. Bank of America Securities employed a sum-of-the-parts (SOTP) valuation method: assigning a 14x EV/EBITDA multiple to its China business (GDS Holdings), representing a 20% discount to overseas peers; for its international business, it assigned a higher multiple of 25x EV/EBITDA. GDS Holdings' resource footprint around Beijing positions it to fully capture incremental demand from leading domestic large model companies like Knowledge Atlas and ByteDance.

Kingsoft Cloud Holdings Ltd: A long-term winner in the Xiaomi ecosystem. Beyond pure-play IDC vendors, the report believes Kingsoft Cloud Holdings Ltd will benefit from an upcycle in cloud service demand driven by Xiaomi's "Human x Car x Home" ecosystem strategy, projected for 2026. As demand for AI training, inference, and data services from the Xiaomi ecosystem increases, this will provide Kingsoft Cloud with a multi-year growth tailwind.

Although the target price remains unchanged at $17.0 / HK$8.8, analysts emphasized that after years of industry-wide price reductions, the pricing dynamics of the public cloud industry are at a positive inflection point, and Kingsoft Cloud is well-positioned within this recovery cycle.

According to the report data, Kingsoft Cloud is assigned a 3x forward 12-month Price-to-Sales (P/S) ratio, reflecting the market's greater emphasis on its growth prospects over short-term profitability.