【Tianfeng Securities Overseas Tech】 After reviewing all the various AI related earnings, we believe the AI bull market is returning on the back of strong fundamentals One very clear trend is emerging from the recent earnings of companies across the AI industry chain. Growth in cloud businesses is accelerating again, and compute demand continues to exceed supply. Customers are showing a willingness to accept price increases and even to prepay, and the unit economics of AI infrastructure are improving. Market attention is shifting away from concerns about excessive capital expenditure (CapEx) and back toward the belief that demand and profitability will actually materialize. Large cloud: The slope of cloud business growth turned upward this quarter, and the scale of new bookings in the quarter was overwhelmingly larger than in any of the past 20 quarters. Google has effectively no choice but to go all in. The mindset is that failure means the end. Even with negative free cash flow (FCF), every $1 of incremental cloud revenue converts into roughly $0.54 of new operating profit. On a simple calculation, the payback period is about 2 years. AWS's margin of 39.4% is very strong. This provides an answer to the questions about return on investment (ROI). AWS will ultimately become a business with $1 trillion in annual revenue, with roughly 5x of growth headroom over the long term. The payback period for the cloud business is also under 3 years. Microsoft: Azure's growth reaccelerated, providing an answer to concerns about the durability of that growth. Neocloud: Earnings, demand, pricing power, and financing capability have all been validated across the board. CoreWeave's (CRWV) recent compute resources are effectively all sold, with multiple customers competing to secure GPU volume. It added about 500MW of active power in a single quarter, and its year end target has been raised to more than 1.85GW. Its customer base is also broadening from large AI model companies and cloud giants to industrial, financial, life sciences, government, and traditional enterprises. AI is moving from a training centered frenzy toward a phase of adoption across every industry. CoreWeave raised prices across all SKUs by about 25% in July. The profit contribution rate on new contracts rose by 5 to 10 percentage points. This shows that customers judge the returns they earn from AI to be sufficient to absorb higher compute prices. Even the A100, launched in 2020, is being signed into high priced contracts running through 2029. This also refutes the core bear case that GPUs are rapidly rendered obsolete within 3 to 4 years and that their residual value goes to zero. Nebius (NBIS) saw total new contract value in the second quarter grow roughly 4x versus the prior quarter, with new customer contracts up more than 9x. Price tolerance on the demand side is so strong that, under current terms, it could sell all of its 2027 capacity today. Annual revenue on new contracts reaches $20 million to $25 million per MW. Pricing on prior generation GPUs also rose more than 30% versus the prior quarter, and short term total bookings reach as much as $40 million to $50 million per MW. Customers have begun prepaying the cost of building AI infrastructure. About 70% of new contracts include prepayment provisions, which can cover 50% to 60% of the related CapEx. Expected project payback periods have shortened from 2 to 3 years previously to 1 year and 10 months. This means AI infrastructure is not simply a business that scales while burning cash, but one that has already secured strong unit economics. Optical communications: The FCC related disruption is limited and the practical impact should be minimal. Lumentum (LITE) reported results above market expectations and raised guidance. EML demand exceeds supply by about 30%. The shortage of ultra high power lasers also continues to widen. Innolight's laser products are effectively sold out, and it plans to expand capacity roughly 4x over the coming quarters. The bottleneck remains delivery capability. Quarterly OCS revenue clearly exceeded $100 million for the first time. NPO is not a technology that replaces CPO but a newly added intermediate architecture. Key customers' CPO plans are unchanged and demand signals are getting stronger. AI architecture is becoming increasingly optically integrated. Memory and storage: It is now nearly certain that a bottom is forming. The core logic is to take time to secure room for recovery. The absence of price increases after the share price decline is already reflected in market expectations, and visibility on long term agreements (LTA) and shareholder returns is steadily improving. Compute: The market narrative is shifting back toward AI training and open source. We are positive that Nvidia (NV) will challenge its prior high, and a narrative around RSI is also gradually forming.

【Tianfeng Securities Overseas Tech】 After reviewing all the various AI related earnings, we believe the AI bull market is returning on the back of strong fundamentals One very clear trend is emerging from the recent earnings of companies across the AI industry chain. Growth in cloud businesses is accelerating again, and compute demand continues to exceed supply. Customers are showing a willingness to accept price increases and even to prepay, and the unit economics of AI infrastructure are improving. Market attention is shifting away from concerns about excessive capital expenditure (CapEx) and back toward the belief that demand and profitability will actually materialize. Large cloud: The slope of cloud business growth turned upward this quarter, and the scale of new bookings in the quarter was overwhelmingly larger than in any of the past 20 quarters. Google has effectively no choice but to go all in. The mindset is that failure means the end. Even with negative free cash flow (FCF), every $1 of incremental cloud revenue converts into roughly $0.54 of new operating profit. On a simple calculation, the payback period is about 2 years. AWS's margin of 39.4% is very strong. This provides an answer to the questions about return on investment (ROI). AWS will ultimately become a business with $1 trillion in annual revenue, with roughly 5x of growth headroom over the long term. The payback period for the cloud business is also under 3 years. Microsoft: Azure's growth reaccelerated, providing an answer to concerns about the durability of that growth. Neocloud: Earnings, demand, pricing power, and financing capability have all been validated across the board. CoreWeave's (CRWV) recent compute resources are effectively all sold, with multiple customers competing to secure GPU volume. It added about 500MW of active power in a single quarter, and its year end target has been raised to more than 1.85GW. Its customer base is also broadening from large AI model companies and cloud giants to industrial, financial, life sciences, government, and traditional enterprises. AI is moving from a training centered frenzy toward a phase of adoption across every industry. CoreWeave raised prices across all SKUs by about 25% in July. The profit contribution rate on new contracts rose by 5 to 10 percentage points. This shows that customers judge the returns they earn from AI to be sufficient to absorb higher compute prices. Even the A100, launched in 2020, is being signed into high priced contracts running through 2029. This also refutes the core bear case that GPUs are rapidly rendered obsolete within 3 to 4 years and that their residual value goes to zero. Nebius (NBIS) saw total new contract value in the second quarter grow roughly 4x versus the prior quarter, with new customer contracts up more than 9x. Price tolerance on the demand side is so strong that, under current terms, it could sell all of its 2027 capacity today. Annual revenue on new contracts reaches $20 million to $25 million per MW. Pricing on prior generation GPUs also rose more than 30% versus the prior quarter, and short term total bookings reach as much as $40 million to $50 million per MW. Customers have begun prepaying the cost of building AI infrastructure. About 70% of new contracts include prepayment provisions, which can cover 50% to 60% of the related CapEx. Expected project payback periods have shortened from 2 to 3 years previously to 1 year and 10 months. This means AI infrastructure is not simply a business that scales while burning cash, but one that has already secured strong unit economics. Optical communications: The FCC related disruption is limited and the practical impact should be minimal. Lumentum (LITE) reported results above market expectations and raised guidance. EML demand exceeds supply by about 30%. The shortage of ultra high power lasers also continues to widen. Innolight's laser products are effectively sold out, and it plans to expand capacity roughly 4x over the coming quarters. The bottleneck remains delivery capability. Quarterly OCS revenue clearly exceeded $100 million for the first time. NPO is not a technology that replaces CPO but a newly added intermediate architecture. Key customers' CPO plans are unchanged and demand signals are getting stronger. AI architecture is becoming increasingly optically integrated. Memory and storage: It is now nearly certain that a bottom is forming. The core logic is to take time to secure room for recovery. The absence of price increases after the share price decline is already reflected in market expectations, and visibility on long term agreements (LTA) and shareholder returns is steadily improving. Compute: The market narrative is shifting back toward AI training and open source. We are positive that Nvidia (NV) will challenge its prior high, and a narrative around RSI is also gradually forming.

Source:https://x.com/jukan05/status/2087557404963803588