Last night, the Federal Reserve's unexpectedly hawkish statement on interest rate cuts triggered a massive shock in the global capital markets, with the three major U.S. stock indices experiencing a rare collective plunge.

Today, the A-shares opened significantly lower due to the impact, but in the afternoon, the AI Industry Chain concept stocks collectively rallied strongly, successfully pushing the Shenzhen Component Index and the GEM into positive territory. By the market close, the relevant indices of the three major sectors, AI, Computing Hardware, and Internet Plus-Related, rose more than 4%, significantly outperforming the market.

The essence of stock trading is about speculating on expectations. In the past couple of days, the Hong Kong and A-shares have re-entered adjustments, largely due to weakened expectations for the future. In this state, selecting investment directions with certainty has become the mainstream choice in the market.

Since the beginning of this year, the AI Industry Chain has consistently been the most certain core mainline.

Now, with the strong emergence of the ByteDance Doubao family models and the domestic version of the Apple Smart Phone AI beginning to integrate into domestic large models, it can be said that this has once again opened up a much larger imaginative space for the AI industry.

01

The market embraces the most certain direction.

Firstly, the statement from the Federal Reserve last night had the greatest impact on the Global Capital Markets, as it clearly hinted at a slowdown in the pace of interest rate cuts next year, which will constrain the policy space and rhythm of other countries that are stimulating their economies through interest rate cuts.

Powell believes that inflation will not return to 2% until 2027, and it is necessary to avoid cutting interest rates too quickly or exiting the 'restrictive rate' too early. Currently, the Federal Reserve continues to raise the long-term policy rate to 3%, with the highest forecast for the long-term policy rate at 3.9%, and the policy rate at 4.3%.

For the USA economy, which is on the path of determined recovery, relatively high interest rates do indeed have many adverse reactions, such as persistently high inflation, but this is not urgent and can still be accepted. After all, this allows the dollar to maintain its strength for a longer time, attracting global funds back.

Although the US stock market experienced a collective collapse, thanks to the strong economic fundamentals, the overall resilience is very high, making it unlikely to see a deep 'avalanche' market.

However, the situation of other countries' markets is different.

The A-share market is currently in a waiting period for a new round of policy stimulus, and the market has been trading with bullish expectations for a 'interest rate cut' soon (because an important previous meeting mentioned continuing to provide a moderately loose monetary environment, tools such as 'timely interest rate cuts and reserve ratio cuts'. Now, with the Federal Reserve's sudden hawkish stance on next year's interest rates, it is inevitable that there will be concerns in the domestic market about whether this expectation can be realized in the short term, and it has even affected positive expectations for monetary policy space next year.

Therefore, the sectors such as retail, consumer discretion, and real estate, which were previously expected to be stimulated by favorable policy from important meetings, all turned to decline today.

At the same time, today the large bank sector in A-shares fell in response, partly due to the market's concerns that the subsequent pace of interest rate cuts and reserve requirement ratio reductions in the domestic market may be affected. This year, Financial Institutions have been aggressively speculating on long-term Bonds, even over-allocating and leveraging to purchase long-term Bonds, with the underlying logic betting that future Bond yields will follow interest rates down (corresponding to rising Bond prices, allowing institutions to profit from the price increase).

However, if interest rates do not decline as expected (no rate cuts), there may be a risk of Bond prices falling (betting failure, institutions selling to stop losses), leading to yield risks for those Financial Institutions that have heavily allocated in long Bonds.

Speaking of which, yesterday the central bank held talks with institutions that performed relatively aggressively in the Bond bull market since December, and now it seems that the central bank's ability to anticipate is truly commendable.

Today, the most outstanding performance in the market remained with the domestic AI Industry Chain Concept, which received two major favorable stimuli.

One is that on December 18th, Volcano Engine held the FORCE Power Conference, releasing several pleasantly surprising upgrades to the Doubao family series models in various areas;

The other is that the market suddenly reported that Apple is in discussions with Tencent and ByteDance regarding the AI capabilities of the Chinese iPhone, intending to integrate both companies' AI models into the iPhones sold in China, which has triggered a collective surge in the related concept stocks of these two giants.

Among them, Kaichun Co., Hangzhou Raycloud Technology Co., Ltd, and Qingmu Technology, which have obtained Douyin's massive engine marketing merchant certification, as well as Byte-related concept stocks such as Range Intelligent Computing Technology Group providing power rental services, all strongly achieved a 20CM limit increase.

02

Investment opportunities behind Doubao.

Compared to competitors, ByteDance's timing in the AI field is relatively delayed; domestic tech giants such as Baidu and Alibaba released large models early last year, while Byte's Doubao only emerged in August.

To catch up and increase model usage, Byte has invested significantly in large models and applications over the past year.

First, in terms of computing power investment, it was reported that Byte has purchased about 0.23 million NVIDIA chips so far this year, second only to Microsoft (0.485 million), surpassing tech giants like Meta and Google.

Secondly, the spending on advertising is also telling; it was reported that as of November, the promotion of its Doubao product has cost about 400 million, second only to Kimi's 0.54 billion.

As of the end of November, the Doubao APP has accumulated over 0.16 billion users this year, ranking first in China; it is reported that the average daily tokens usage of the Doubao large model in December surpassed 4 trillion, an increase of more than 33 times since its release in May.

In addition to the cloud-based large model, Byte is also actively expanding the Doubao ecosystem on the client side.

This year, Byte has continuously launched multiple AI products in the global market, including Doubao APP, Cat Box, Star Drawing, and Doubao AI Learning. In August 2024, the overseas investment institution a16Z compiled statistics on the top 50 generative AI web products and the top 50 generative AI mobile applications, with several applications under Byte making the list.

Not only that, the landing of AI applications also requires hardware support; Byte is actively laying out AI hardware to find C-end application scenarios for Doubao.

In October, Ola Friend, acquired by Byte, launched a headset that integrates with the Doubao large model. Users can wear the headset and without opening their phones, invoke the Doubao APP on their phones via voice for conversations, providing assistance in scenarios like travel, English learning, and chatting.

Currently, OPPO, vivo, Honor, Xiaomi, Samsung, and ASUS have jointly initiated the Smart Terminal Large Model Alliance with Volcano Engine, with applications such as OPPO's Little Assistant, Honor's MagicBook YOYO Assistant, Xiaomi's Little Love Classmate, and ASUS's Douding AI Assistant all connecting to Doubao large model services.

Just yesterday, at the "FORCE Original Power Conference" hosted by Volcano Engine, Byte officially announced the Doubao visual understanding model, which possesses stronger capabilities in content recognition, understanding and reasoning, and visual descriptions. The input price for this model is 0.003 yuan/thousand tokens, which is 85% lower than the industry price.

Leveraging the massive traffic platform of ByteDance, as the scale of Token utilization grows, Doubao is flourishing in various application scenarios. For instance, in information processing scenarios, reports indicate that in the last three months, the call volume for Doubao's large model has increased by 39 times; in customer service and sales scenarios, it has grown by 16 times; and in hardware terminal scenarios, it has increased by 13 times.

Currently, the large models and edge AI from ByteDance have taken shape, and as multi-modal functions and more application scenarios continue to proliferate, similar to the popularity of ChatGPT in the past, the Scaling Law can still perform well domestically, indicating that there are excellent investment opportunities on both the user growth and computing power construction sides.

According to media reports, ByteDance is initiating an unprecedented wave of data center infrastructure construction. By 2025, capital expenditures are expected to double to 160 billion RMB, with 90 billion allocated for AI computing power procurement and 70 billion directed towards data center infrastructure construction and supporting hardware. Although there are international political obstacles in acquiring advanced graphics cards, ByteDance has incorporated the procurement of chips from domestic manufacturers like Cambricon, Haiguang Information, and Ascend to accelerate product development.

At the same time, AI products integrated with Doubao have the potential for widespread application in fields such as Education, Medical, and entertainment, becoming a powerful engine driving AI endpoints, and partnering companies are likely to encounter immense growth opportunities.

Furthermore, as AI applications become a major narrative direction, component supply chain enterprises will also benefit from rapid growth in terminal product sales. The main value increment comes from the iteration of system integration chips (SOC), which must adapt to the computational demands of edge models. For example, in the wearable sector, the original digital chip required fast connectivity and low power consumption, while the future focus will be on multi-modal processing capabilities, such as visual processing capabilities in AR glasses. It is also worth noting whether domestic manufacturers deploying edge chips can achieve breakthroughs.

03

Epilogue

Looking back at the history of the iteration of electronic products, from mainframe computers to personal computers/laptops, and then to smart phones, the key variable has always been the overperformance of old products, solving problems that most people didn't have. Thus, new products often provide more core functions at more affordable prices in order to achieve wider adoption.

Currently, whether domestically or internationally, from model training to computing power construction, and then to the implementation of edge applications, while AI has not yet reached our expectations, advancements in inference technology are beginning to support its move toward the endpoint.

The main narrative of the AI industry next year is likely to be the blooming of edge AI everywhere. This means that the future discourse power of the industry may gradually shift towards large enterprises that have accumulated vast amounts of private domain data. The current trend with ByteDance, for instance, reflects this.

Until next year, this thematic investment opportunity will continue to catalyze. (End of the article)