China Galaxy Securities: The continuing differentiation between software and hardware, domestically produced computing power is expected to break through bottlenecks.

China Galaxy Securities released a research report stating that Huawei has proposed the Tao Law, and domestic computing power is expected to break through bottlenecks. In addition, operators have launched token packages, driving the commercialization of AI and opening an era of popularization for all. In May, the artificial intelligence sector still showed severe differentiation within the sector. Currently, the upstream infrastructure industry chain of artificial intelligence still has a high certainty trend in terms of the direction, while software and application companies are still at the bottom, showing overall weak performance. In the short term, the differentiation is expected to continue. It is recommended to focus on the upstream computing power infrastructure, especially the domestic computing power industry chain, and actively seek opportunities in the application sector. Key points from China Galaxy Securities are as follows: In May, the artificial intelligence sector experienced a slight decrease, with hardware and software maintaining differentiation. The artificial intelligence sector index (884201.WI) had a monthly fluctuation of -4.07%, while during the same period, the Shanghai Composite Index saw a fluctuation of -1.06%, the CSI 300 saw a fluctuation of 1.76%, and the ChiNext Index saw a fluctuation of 9.81%. The bank believes that within the artificial intelligence sector in May, there are still severe differentiating characteristics. Hardware companies such as optical modules, semiconductor equipment, design, packaging and testing are performing well, leading to a surge in the ChiNext Index and setting new highs. The upstream infrastructure industry chain of artificial intelligence is still a trend race track with high certainty, while software and application companies are still at the bottom, and the overall performance is weak. In the short term, the differentiation is expected to continue, and it is suggested to focus on the high prosperity of the upstream computing power infrastructure, especially the domestic computing power industry chain, and actively seek opportunities in the application sector. Huawei has proposed the Tao Law, and domestic computing power is expected to break through bottlenecks. On May 25, at the 2026 International Circuit and System Workshop, Huawei officially released the Tao Law, which is the first time China has introduced a new principle to guide industrial development in the global semiconductor field. The Tao Law proposes to replace geometric scaling with time scaling, aiming to systematically reduce the time constant . By continuously compressing the signal propagation delay through innovative technologies such as logic folding, continuously improving the transistor density, and achieving continuous evolution of semiconductor and electronic systems. Based on this law, Huawei has successfully designed and mass-produced 381 chips in the past six years and plans to release a new Kirin mobile chip in the fall of this year, utilizing logic folding technology to significantly improve performance. The bank believes that the Moore's Law previously stated that the transistor density doubles every 18-24 months, which relies on geometric scaling. The Tao's Law proposed by Huawei is not a physical law, but a new paradigm in system-level design that emphasizes optimizing target time. It achieves equivalent advanced process performance through logic folding and other means on mature support, extending and expanding into the post-Moore era, and is expected to drive a turning point in the domestic computing power industry chain. Operators have launched token packages, driving the commercialization of AI and entering an era of popularization for all. On May 14, China Telecom Corporation was the first to introduce a trial-use token package, offering multiple options for individuals and developers, with the lowest package price being 9.9 yuan per month for 10 million tokens. Subsequently, China Mobile Limited, China United Network Communications, and other subsidiaries have successively launched token package products for individuals, and government and enterprise users. The bank believes that with the continuous iteration and upgrade of artificial intelligence technology, applications such as large models and intelligent bodies are experiencing explosive growth. According to data from the National Bureau of Statistics, as of March 2026, China's daily token call volume has exceeded 140 trillion, growing more than a thousand times in two years. Leveraging advantages such as computing power networks, cloud network integration foundation, and massive customer resources, operators have introduced token packages to help drive exploration and innovation in traditional operator business models, opening an era of universal AI application and paving the way for new growth opportunities for operators. Risk warning: Risks of technical iteration falling short of expectations; Increased competition risks from technology giants; Legal regulatory risks; Supply chain risks; Risks of lower-than-expected downstream demand.