CITIC Securities Internet Q2 Quarterly Report Summary and Investment Outlook: AI Balances Investment and ROIC Main Business Focuses on Performance Resilience

The Zhitong Finance App learned that CITIC Securities released a research report saying that since 2026Q2, the Hang Seng Technology Index valuation has remained low and fluctuating, and the sector's core pricing factors have shifted from differentiation in external risk appetite to market liquidity expectations, sector performance resilience, and cash flow. Looking ahead to 26H2, the sector market will still be interpreted definitively around AI progress and main business performance. From an AI perspective, it is recommended to focus on the model iteration of leading Internet companies, the pace of intelligent penetration, application expansion, and the catalysis brought about by commercialization expectations; from an industry perspective, it is recommended to focus on companies with high performance certainty and good cash flow and shareholder returns.

CITIC Securities's main views are as follows:

Market review: Low valuations fluctuate, focusing on profit and cash flow.

2026Q2, Hang Seng Technology/China Internet Index cumulative -3.8%/-13.9% (NASDAQ index +21.4% for the same period); since 2026Q3 (as of September 11), Hang Seng Technology/China Internet Index has accumulated -3.4%/+0.5% (NASDAQ index +0.5% for the same period). Since July, the core pricing influencing factors of the sector have shifted from differentiation in external risk appetite to market liquidity expectations, sector performance delivery and cash flow conditions. As of September 11, the Hang Seng Tech Index NTM PE was 15.2x, close to the historical average minus one standard deviation, and the valuation fluctuated at a low level.

Performance review: Steady revenue growth, profit repair divergence.

In terms of revenue, the total revenue of major domestic Internet companies increased 5% year on year in 26Q2, and the growth rate was the same as 26Q1. Among them, Meituan (+14%), BOSS Direct Recruitment (+14% year over year), and Tencent Holdings (+11% year over year) achieved good growth. In terms of profit, the total net profit of the 26Q2 non-GAAP net profit of major domestic Internet companies was -9% year-on-year, and the decline was significantly narrower than the 26Q1 -32% decline. Looking ahead to 26H2, the revenue side of internet companies is expected to maintain steady growth. According to Visible Alpha's agreed expectations, the total revenue of major Internet companies in 26Q3/Q4 is expected to increase 8%/9% year on year, and profit side recovery is expected to continue; according to Visible Alpha's consistent expectations, the total non-GAAP net profit of major Internet companies in 26Q3/Q4 is expected to increase 8%/37% year over year.

AI progress: China's big model is catching up at an accelerated pace, taking into account investment and ROIC.

Since July, China's big model iteration has accelerated. According to Artificial Analysis, Kimi K3 and GLM5.3 are close to the evaluation levels of GPT-5.6 and Fable 5 with a time difference of about two months; model capabilities such as DeepSeek, Thousand Questions, and Mixed Elements have also continued to improve, and many domestic manufacturers have entered the first tier of the world. Furthermore, in 26Q2, domestic and foreign cloud vendors all provided more clear and impressive guidance on the ROIC of AI investment. According to Alibaba's performance report, at the current average gross profit level of AI products, AI capex can pay back within about 3 years; according to the Tencent Holdings performance report, current market demand for computing power is strong, and even if all computing power is leased out to Tencent Cloud customers, it can generate considerable revenue. Looking ahead, under the AI narrative, it is recommended to focus on the model iteration of leading Internet companies, the pace of intelligent penetration, application expansion, and the catalysis brought about by commercialization to meet expectations.

Industry perspective: Shareholder returns provide a margin of safety, and high performance certainty provides an upward drive.

In terms of shareholder returns, as of August 31, Huanju, NetEase Cloud Music, BOSS Direct Hire, and TME repurchase returns during the year reached 5.9%/5.3%/3.8%/3.2%. Weibo, Vipshop, Huanju, and JD paid dividend returns during the year 9.1%/4.8%/3.9%/3.5%, and Huanju enhanced the 2026-2028 shareholder return plan. Manbang and BOSS Direct Hire maintain medium- to long-term shareholder return guidelines, all providing a strong margin of safety. In terms of performance, some companies are expected to reach an inflection point in performance thanks to product cycles and base effects.

Risk factors:

Macroeconomic growth has slowed, leading to lower growth than expected in e-commerce, gaming, advertising and other industries; downturn in valuation risks due to disruptions in Sino-US relations; falling short of expectations in terms of liquidity easing; performance recovery falling short of expectations due to falling short of expectations in Internet companies' cost reduction and efficiency; new business and new market expansion falling short of expectations, or investment losses exceeding expectations; investment strategies such as risk of core shareholders' holdings falling short of expectations; progress in implementation of policies falling short of expectations; competition is becoming increasingly intense.