美银-中国股票策略：中国软件与实体AI发展专家电话会议纪要

Expert calltakeaways:DevelopmentsinChina's software &physical Al EgqultyStrategy 20 November 2025 Highlights We hosted Ms. Jing Hong, who is the Founding Partner of Gaocheng Capital and has ledprivate investments on many leading Internet and software companies in China, todiscuss the latest development in China software and physical Al. We summarize hercommentary below. It should be noted that the views expressed herein attributed to anythird-party speaker are not and should not be construed to be indicative of the view ofthe BofA Global Research Department. Equity StrategyChina Winnie Wu >MerllLinch GHo'g Kare!Research Anclyst Daley L, CFA >>Merril523300 53Hu'g Konellaelzbofaca Technology waves and China's stronger presence Ms. Horg traced major technology irriovation cycles fromn the mainframe era to rnobileand cloud, noting that rnega valuc creatiorn aligns with thesc cycles. For the past cycles,including mainframe, mini-computer, PC, internet, and rmobile, the eariy waves wereprimarily led by U.S, tcrpanies (e.g. IBM, HP, Microsoft), while Chinese cpmpanies, suchas Alibaba and ByteDance, caught up quickly during the internet & mobile cycles andwere often innovative in these phases, 5ince the advent of the large language model[ULM) in 2022, espetially with reduced cost frorn launch of Derp5erek, a new wave ofsoftware Al has crnerged. 5irnulcaneously, progress in algorithms, chips, batterics, andradar is driving a potential huge wave in physical Al with machines that can perceive,analyze, and act in the real vorld. Hong believed that Chinese ccrnpanies are makingstrcng progress in both 5oftware Al and physical AL Buenz AueHMerill Lynch (Ho'g Kargharry.zhuingbofacaOFFL AOCS2SR+ Gina Wu >:MerillLimchClo'e KorelStratesistginawushalatam Glossary China's structural advantages and secular opportunity ADAS: advanced driver assistancesystem Hong believed China is positioned to be at the forefront of both Software Al andPhysical Al due to several acvantages. These advantages include a vast base of digital.native consumers, advanced mcbile internet infrastructure, and diversified digital usecases for software Al, as well as high manufacturing productivity, a ccmprehensivesupply chain, and consistent policy support for physical Al. Hong also shared her view onfundamental drivers of China software industry: 1) the shift in GDP growth from labor /capital-driven to efficiency / innovation-driven necessitates leveraging software and Al:25mn per year in the 1980s; makes productivity improvements crucial; 3) cloudinfrastructure development and abundant talent supply (5mn STEM gracuates pa withcollege degree or above), and 4) accelerated digital transformation in Al. Currently, 1/3of the 60 consumer internet companies with USD1Cbn+ market cap are from China,while only 10% of the 120 global software companies with such scale are from China.Looking forward, Hong expected Chinese names to account for half of the USD1Obn+market cap software companies in the next 10-15 years. AGl: artificial general intelligence Al: ertificial intelligence LLM: large language model M&:A: merger and acquisition PC: personal computer ROl: return on investment SaaS: software as a service STEM: scierce, techrology.engineering, and methermatics Attractive risk-reward profile for China SaaS leaders As a grovth investor, Ms. Hong prefers to invest vhen the technology enters the slopeof enlightenment, which has already passed the peak of inflated expectations ancl gonethrough the trough of disillusionment. She believed China SaaS leaders offer anattractive risk-reward profile, given: 1) solid business fundamentels (significant profitmarket share for leaders during economic downtum), 3) ample margin of safety endproven playbook for leading U.5. software companies, as on average 40% of theirrevenue has historically come from acquisitions), and 5) benefticiaries of AlGC, leveragingHowever, China software companies still trade at significantly lower multipies comparedto U.5. peers with similar growth profiles [15.3x FY25E P/5 for U.S. SaaS companies vs.8.5x FY25E P/5 for Chinese SaaS companies with >25% YoY revenue growth in FY25E) China's Al innovation: focus on practical solutions Ms. Hong described China's Al innovation as pursuing a practical approach focused onhigh ROI and efficiency, in contrast to the U.S. focus on AGI. Chinese LLMs are 'smaller,smarter but cheaper, using lightweight mcdels, MoE structure, dlomestic. chips, andopen-5ource strategies, vwhich results in 1) 8095%a lower training and inferencing costs(e.g., Qven3-Max achieves perfarmance cn par vith GPT-4o at only 5% ef the cost; KimiK2 Thinking matches GPT-5 at 25% of the cost), 2) 9C%+ cost reduction oninfrastructure through domestic chips and cloud vertical integration, 3) 60% lowerdeployment costs via an “edge + mobile first" strategy, and 4) 80%s+ lower enitry barrierswith zero licensing fees under a freemium and volume pricing model. China's edge: cost-