Software demand is under near-term pressure, while AI investment and a seasonal recovery in the second half are the main supports

Overview

The report tracks operating data for China's software industry in June 2026 and leading demand indicators for July. Industry revenue growth slowed to 6.4% YoY in June, with cumulative growth in the first half at about 9.5% to 9.6%; the SME PMI further declined to 47.4 in July, indicating that the recovery in enterprise software spending remains unsteady. At the same time, net margin improved to 12.4% in June, IT services still contributed nearly 70% of revenue, and AI-related projects, foundation models, customized models, and agent applications continued to receive budget allocation priority. The report expects industry revenue to improve sequentially in the second half of 2026, supported by seasonal factors.

Core views

Near-term demand remains weak, with slower revenue growth and SME PMI below the boom-bust line both pointing to pressure on enterprise IT budgets; structurally, semiconductor design, IT services, and cloud computing and big data performed relatively well in June, while IT services remained the largest revenue source; AI spending is more resilient than traditional software spending, and commercialization and scenario expansion of foundation models, customized models, agents, and multimodal applications may become important drivers of the next phase of industry recovery; the sequential improvement in margins indicates some enhancement in industry operating efficiency, but its sustainability still needs to be verified by subsequent data.

Analysis framework

The report is based on industry revenue and profit data from the Ministry of Industry and Information Technology, combined with SME PMI, segment growth rates, overseas revenue share, service outsourcing data, and companies' hiring, profitability, and product iteration, to assess the recovery path of software demand, and evaluates structural investment opportunities through AI product progress and application-scenario expansion.

Methodology notes

• Industry fundamentals trackingMonthly revenue and profit monitoring

  Assess industry sentiment through YoY and sequential changes in industry revenue, net profit, and net margin.

  The report primarily uses aggregated data on China-registered software enterprises disclosed by the Ministry of Industry and Information Technology, and compares current-month, cumulative-period, and prior-year-period performance.

• Leading demand indicatorsSME PMI tracking

  Use the SME PMI to observe economic momentum, customer budgets, and enterprises' propensity to purchase software.

  The PMI fell to 47.4 in July and remained below 50, based on which the report judges that enterprise IT spending still faces downward pressure in the near term.

• Industry structure analysisSoftware industry segment breakdown

  Break down revenue contribution by IT services, software products, embedded system software, and information security software and services.

  This method is used to identify major sources of growth; IT services accounted for 69% of industry revenue in the first half and were driven by cloud computing and big data businesses.

• Thematic investment trackingAI product momentum and application-scenario monitoring

  Track product iteration and commercialization of foundation models, customized models, AI agents, multimodal generation, and personal AI assistants.

  The report treats AI product progress, customer adoption, hiring, and profitability as important indicators for assessing the recovery of software spending and investment opportunities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Software (600536.SS)

  Associated with the title and entity information, but the main text primarily analyzes China's overall software industry.

  Strengths

  Industry-level AI investment, IT services demand, and seasonal improvement in the second half may provide indirect positives.

  Weaknesses

  The report does not provide the company's revenue, orders, margins, or AI product data.

  Comparison

  The report does not conduct a quantitative peer comparison for the company.

  Risks

  A clear rating, target price, or earnings forecast for the company cannot be derived from this report.

• SenseTime

  A Buy-rated name in the artificial intelligence theme.

  Strengths

  The report views AI foundation models and text, image, and video generation capabilities as important drivers of application ecosystem expansion.

  Weaknesses

  The main text does not provide company-level profitability, valuation, or cash flow analysis.

  Comparison

  Listed together with Meitu as a preferred name in the artificial intelligence theme.

  Risks

  AI commercialization progress, customer budgets, and application adoption speed may fall short of expectations.

• Meitu

  A Buy-rated name in the artificial intelligence theme.

  Strengths

  Multimodal content generation and consumer-facing AI application trends are related to its thematic direction.

  Weaknesses

  The main text does not provide company-level operating data or valuation basis.

  Comparison

  Listed together with SenseTime as a preferred name in the artificial intelligence theme.

  Risks

  User paid conversion, product iteration, and monetization of AI features may be weaker than expected.

• Hundsun

  A Buy-rated name in the financial software theme.

  Strengths

  If enterprise IT spending recovers, software upgrade demand from financial institutions may provide support.

  Weaknesses

  The report does not provide company-specific orders, revenue, or earnings forecasts.

  Comparison

  It is a financial software name in the report's preferred basket, corresponding to a different application area from AI and IoT software names.

  Risks

  Weak enterprise IT budgets and longer project implementation cycles may suppress growth.

• TUYA

  A Buy-rated name in the IoT software theme.

  Strengths

  AI agents, personal assistants, and more efficient terminal application expansion may increase demand for IoT software.

  Weaknesses

  The main text does not provide company-level financial and valuation analysis.

  Comparison

  It is an IoT software name in the report's preferred basket.

  Risks

  Weak terminal demand, slower customer spending, and weaker-than-expected AI application deployment.

Key data

• Software industry revenue in June 2026Rmb1.5trn, up 6.4% YoYBelow 8.5% in May 2026 and 15.1% in June 2025.
• Software industry revenue in the first half of 2026Approximately Rmb7.7trn, up about 9.5% to 9.6% YoYThe text lists 9.5% and 9.6% in different sections; both are below 11.9% in the first half of 2025 and also below 10.3% in the first five months of 2026.
• SME PMI in July 202647.4Below 48.5 in May and 48.2 in June, continuing to stay below the boom-bust line.
• Industry net margin in June 202612.4%Above 11.9% in May; net margin in the first half was 11.7%, above 11.5% in the first five months.
• Industry net profit in June 2026Rmb182.6bnEquivalent to approximately US$25.4bn.
• Overseas market revenue and shareUS$6.1bn, accounting for 3.0%The overseas revenue share in June declined from 3.2% in May.
• Revenue structure in the first halfIT services 69%, software products 22%, embedded system software 8%, information security software and services 2%The total may exceed 100% due to rounding; IT services are the industry's largest revenue source.
• IT services revenue in June 2026Rmb1.0trn, up 7% YoYIT services revenue in the first half was Rmb5.3trn, with cloud computing and big data as the main drivers.
• Information security software revenue in June 2026Rmb32.3bn, up 6% YoYGrowth was higher than 5% in May; first-half revenue was Rmb143bn.
• Executed service outsourcing amount in June 2026Rmb152bn, up 29% YoYGrowth was driven by an increase in AI-related projects.
• Buy-rated names and prices listed in the reportHundsun (Rmb23.33), Meitu (HK$4.90), SenseTime (HK$1.57), Tuya ($1.75)The disclosure page lists Buy ratings and related prices, but the main text does not clearly state whether these prices are target prices.

Impact & implications

Aggregate industry data still do not support a conclusion of a broad-based recovery, and traditional enterprise software vendors may continue to face project delays, budget cuts, and order competition. By contrast, companies with AI model capabilities, clear commercialization scenarios, faster product iteration, and exposure to cloud computing and big data are more likely to gain budget share. Seasonal improvement in the second half may bring sequential revenue recovery, but if the SME PMI remains weak, the magnitude of recovery may be limited. Investment screening should focus simultaneously on AI product momentum, order conversion, hiring changes, profitability, and cash flow, rather than relying solely on thematic popularity.

Risks

• The SME PMI continues to remain below 50, and enterprise software and IT budgets may contract further.
• Seasonal improvement in the second half may be weaker than expected, and industry revenue growth may continue to decline.
• Commercialization or customer adoption of AI foundation models, customized models, and agents may be slower than expected.
• The overseas revenue share may continue to decline, limiting incremental market opportunities for the industry.
• Price competition, project delays, and slower customer payments may erode the results of margin improvement.
• There is a discrepancy between 9.5% and 9.6% in the first-half revenue growth figures in the main text, so the original statistical methodology should be checked when using the data.
• The report does not provide company-specific analysis for 600536.SS, so the industry views cannot be directly equated with a stock-specific investment recommendation.

What to watch

• Whether industry revenue can achieve continuous sequential improvement in the second half of 2026.
• Whether the SME PMI can rebound to around or above 50.
• Changes in enterprise software budgets, bidding activity, and project execution cycles.
• Orders, payment, and commercialization progress for AI foundation models, customized models, and AI agents.
• Product iteration and application ecosystem expansion for text, image, and video multimodal models.
• Changes in software companies' hiring, profitability, net margins, and cash flow.
• Whether IT services, cloud computing, and big data can continue to outperform other subsegments.
• Subsequent trends in overseas revenue share and service outsourcing contracts and executed amounts.