Shenwan Hongyuan Group: Valuation appeal of tech companies has increased significantly; focus on the semiconductor industry chain and others

Shenwan Hongyuan Group released a research report stating that, based on the operating quality in the 2026H1 interim reports, it selects recommended targets for the "new stage of technology." Companies in the new stage should have these characteristics: chain-leader attributes, strong operational resilience, and a corporate culture and strategy that are relatively long-term oriented. Regarding operating quality, the firm mainly focuses on the cash collection ratio, net cash ratio, and cash flow conditions. Recommendations: 1) semiconductor industry chain companies; 2) leaders in software-hardware integration; 3) securities firm IT-related; 4) some software technology leaders; 5) optical module leaders (worth watching). Shenwan Hongyuan Group's main views are as follows: The global AI ROI issue is an important reason for the collective adjustment in tech stocks 1) In July-August 2025, MIT's "The GenAI Divide" report, the October 2025 Bank of England meeting, the November 2025 World Economic Forum, and domestic authoritative media in November 2025 all pointed out risks. 2) The problems may be concentrated in: sunk costs, circular financing, commercial profitability paths, and funding leverage risks. 3) Recently, the operating conditions of CoreWeave/OpenAI/Anthropic have intensified such concerns. The domestic AI industry has a higher floor 1) China's AI ROI is not the same. Although AI ROI still needs to be considered, because of the firm's broad and comprehensive manufacturing base, considering only manufacturing AI (using AI to help broad manufacturing create new opportunities, reduce costs, and accelerate turnover) alone yields obvious results. 2) According to authoritative industry data, the digital transformation coverage rate of industrial enterprises above designated size is 92%, the penetration rate of digital production equipment is 63%, the numerical control rate of key processes is 69.5%, and the penetration rate of digital R&D and design tools is 86.3%, further proving the foundation for industrial AI in China. The same cycle, two narratives: understanding the rise and adjustment of technology stock prices 1) In this environment, the firm has formed a cycle of "healthy industry - large number of suppliers - competition exists - short-term profitability may be unstable - valuation multiples decline when the market is cold." 2) When market sentiment is high, a healthy industry and a large number of suppliers often accompany gains in technology stocks; when market sentiment is subdued, short-term earnings instability may bring stock price adjustments. 3) Recent changes in US Treasury yields have made this situation more concrete. On the one hand, investors can understand that the recent decline in A+H technology stocks may be related to changes in US Treasury yields, and historical patterns can also corroborate this. On the other hand, the extreme values of US Treasury yields also mean that "things will reverse when they reach extremes," and investors should begin looking for opportunities in A+H technology stocks. The valuation appeal of technology companies has increased significantly 1) Since July, the PE valuation multiple percentiles of technology leaders have fallen rapidly. The PE-TTM of TMT50 is at the 25th percentile of the past 10 years and the 22nd percentile of the past 3 years. In just 3 months, the above indicators quickly fell from over 90% (even 99%) to below 30%. The PE-TTM of the Hang Seng TECH Index is at the 24th percentile of the past 10 years, and its PS-TTM percentile is below 1%. 2) The current relative valuation multiple of the A-share TMT50 is relatively similar to that in early April, while the relative valuation multiple of Hong Kong stocks is even lower. This shows that even if fundamentals still need to be observed, the amplification effect of investor sentiment has already moved far ahead. This ushers in "a new stage of A+H technology opportunities." Risks come from: 1) the risk of valuation fluctuations. 2) competition risk in the technology sector. 3) the risk of relatively high tracking difficulty.