Tianfeng: The domestic demand for computing power is growing rapidly, emphasizing the opportunities for computing power rental and AI infrastructure investment.

Tianfeng released a research report stating that domestic computing power remains in a high level of prosperity, with a surge in demand for computing power leasing and smart computing centers. It is estimated that the scale of intelligent computing power in China will reach 259.9EFLOPS (based on FP16 calculation) in 2022, and is expected to reach 1117.4EFLOPS by 2027, with a five-year compound growth rate of 33.9%. High-end computing resources are scarce, and computing power leasing has a high rate of return. Zhejiang Haikong Nanke Huatie Digital Intelligence & Technology and Gansu Engineering Consulting Group are recommended investments, with a suggestion to pay attention to Dong Yi Ri Sheng Home Decoration Group (002713.SZ), Ningbo Construction (601789.SH), and other targets. There is a surge in demand for smart computing centers, and it is recommended to pay attention to AI infrastructure investment opportunities and the reevaluation of the value of Shanghai CDXJ Digital Technology (603887.SH) after restructuring. The main points of Tianfeng are as follows: Domestic computing power remains in a high level of prosperity, and there is a surge in demand for computing power leasing and smart computing centers. Domestic computing power remains in a high level of prosperity, with the scale of intelligent computing power in China reaching 259.9EFLOPS (based on FP16 calculation) in 2022, and is expected to reach 1117.4EFLOPS by 2027, with a five-year compound growth rate of 33.9%. The top-level design of the national integrated computing power network system is continuously improving. In February 2022, four ministries jointly issued a notice approving the construction of national computing power hub nodes in 8 regions including Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area, Chengdu-Chongqing, Inner Mongolia, Guizhou, Gansu, and Ningxia, and planning 10 national data center clusters in Zhangjiakou, Yangtze River Delta, Wuhu, Shaoguan, Chongqing, Tianfu, Gui'an, Hohhot Lin, Qingyang, and Zhongwei. By the first half of 2024, there were already over 250 smart computing centers under construction nationwide, with 791 bidding events, and over 20 cities had established smart computing centers. High-end computing resources are scarce, and computing power leasing has a high rate of return. Computing power leasing is essentially the renting out of computing resources. The rise of smart computing power leasing businesses is due to insufficient short-term supply of smart computing resources, especially the shortage of AI chips represented by GPUs, and the large investment scale and high operational requirements of self-built smart computing centers, which result in high comprehensive costs of computing power usage. With the continuous tightening of high-end chipset restrictions, domestic chip development is accelerating but still has some gaps. Therefore, the core competitiveness of computing power leasing business lies in high-end chipset resources, funding sources, and core customer resources. In terms of return on investment, a machine equipped with 8 H100 graphics cards with a five-year lease term and a monthly rent of 70,000 yuan, calculated under the straight-line depreciation method, has a net profit rate of 32%, 34%, 35%, 36%, and 37% for the first to fifth years respectively; whereas, calculated under accelerated depreciation, it is expected to incur a loss of 51,000 in the first year, and have net profit rates of 14%, 35%, 55%, and 75% in the second to fifth years. The equipment has a payback period of about 3 years, and overall computing power leasing returns are at a high level. Zhejiang Haikong Nanke Huatie Digital Intelligence & Technology and Gansu Engineering Consulting Group are recommended investments, with a suggestion to pay attention to Dong Yi Ri Sheng Home Decoration Group, Ningbo Construction, and other targets. There is a surge in demand for smart computing centers, and it is essential to pay attention to the improving prosperity of AI infrastructure investment. The "2024 White Paper on the Development of China's Smart Computing Centers Industry" shows that the investment scale in this field reached 87.9 billion yuan in 2023, with a year-on-year growth of over 90%. By August 2024, there were over 300 smart computing center projects nationwide, and it is estimated that by 2028, the market size of China's smart computing centers will exceed 288.6 billion yuan, with a compound annual growth rate of 26.8% from 2023 to 2028. The operation mode of data centers is mainly divided into two types: retail and wholesale. Taking Beijing Sinnet Technology's Hohhot computing base as an example, the total investment of the smart computing center is allocated in proportions of 46% for power distribution system, 25% for building structure, and 17% for air conditioning system. After reaching full load (with a rack rate of up to 95%), the net profit rate is about 8.19%. Shanghai CDXJ Digital Technology has a total designed capacity of approximately 197MW across its IDC operating projects. As of the end of March 2024, it has obtained approvals for 115MW and achieved sales of 35MW. The company is also planning for a targeted issuance, introducing China Electric Intelligence Computing as its controlling shareholder, integrating high-quality data center assets in the East China region to create the national "team" of computing power centers. It is suggested to pay attention to AI infrastructure investment opportunities and the reevaluation of the value of Shanghai CDXJ Digital Technology after restructuring.