MorganStanleyRESEARCHASIAPACIFICINSIGHTApril27,202609:00PMGMTChina's Emerging Frontiers,MORGANSTANLEYASIALIMTED+GaryYunalystChina'sAlPath:More Bang Foru@morganstanley.comThe BuckEatLn@morganstanley.com8522239-1572YangLiuu@morganstariey.com+8522239-1911WHAT'SCHANGEDRebeccaXuKowledge AtlsTechnology JsScltd(2513.HK)From+8522848-7359ToPriceTargetHKS560.00HKS990.00MiniMax(0100.HK)+8523963-1592PriceTargetHKS1,100.00TomTangFoundation models continue to scale, driven by US compute and+8523963-1860China's engineering efficiency. We believe a recent surge in tokenJang,CFAusage and pricing power points to non-linear ARR growth and+8522239-7339higher valuations for frontier models with high intelligencedensity pertoken cost (MiniMax. Zhipu.Alibaba)stanley.com+8523963-2618ScalingLaw still holds, but so does China's+8522848-6853Predictions for 2026, we wrote thatAmericanTechDiffusionfrontier LLMs will achieve a step-change increase incanahilitiesin 1H26that will"'not bematched withinVicky Wuthesametimeframe by Chinese competorsy+8523963-3928AlthoughUS Alabs continue to see breakthroughsGREATERCHINAITSERVCESANDSOFTWAREinfurndatin mod elcapabie thated ourepectaton, the US-China Alraceremains tieht with China followine bv lust 36 months This is counterintuitive ifIndustryViewIn-LineScalig Law stll holds, as compute remains a key constraint in China, which shows,that China's engineing efficiency has not vet hit its own 'scaling wall"Chinal's Al path-High intelligence density per token cost:Beyond smaller modelaining (reinforcement learning,har Arcordinato OnenRouter, topChineseA13ae market share from 5% inApril2025-to 32% in March,2026(vs. top US models down from 58% to 19%). MiniMax, Zhipu, and BABAreported 46x token-usage increases in February and March ws. December onakingtheirinvestmentContrany to concerns that foundation models are being commoditized, they areification and otherimphe Disclosure Section, located at the end of thisshowing pricing power.Zhipu has roughly doubled prices YTD, and MinilMax doubleditsKV/cacheprie.WeexpectMinilMax to implement a major pricehike aftertheMBsts employed bynon- U.S. afflites are not registeredpublic appearances(Continued)
MoraanStanley|RseaerASIAPACIFICINSIGER We believe Al and LLMnhames will become a much bigger driver of HongKongflows. Knowledge Atlas and Minimax are likely to enter the Hang Seng Tech Index on June 8 with a combined 5-7% welight,which would haveliftedHSTECHYTD1.75bn of passive inflows, while Southbound inclusion (une 8/ August 6)may lftimailandownesihpto 9-20%ofreIlat wtinsi months Strog regulatorsupportis evident, with tech accounting for-40%of-HK(POfundraising YTD and43%ofthe pipeline,reinforcing,Alasadurable force inHongKong'sequitymarket,Investment implications: We forecast frontier models ARR toreach US$14.5bn eachby end-2026 and US$2.5-5bn by end-2027 (base-bul ranges) imolvine 3-5 annual growth. Key OWs MiniMax and 2hipuforpure-plays BABAforfullAIstackcapabilities
MorganStanley|weseacnASIAPACIFICINSIGHTThe Storv in Charts,Ex...
