Goldman Sachs: China Software Sector March Growth Slows, Positive on AI Agents and SMB Recovery
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Goldman Sachs: China Software Sector March Growth Slows, Positive on AI Agents and SMB Recovery
March China software industry revenue grew 11.6% year-over-year; although slightly down from the previous two months, benefiting from SMB PMI recovery and increased corporate AI agent spending, expected to achieve sequential growth in Q2.
- March software sector revenue year-over-year growth slowed to 11.6%, with full Q1 overall growth at 11.6%.
- Small and Medium Enterprise Purchasing Managers' Index (SMB PMI) rose to 50.1 in April, signaling improved IT spending outlook.
- IT Services remains the largest revenue source, accounting for 67%, mainly driven by cloud computing and big data.
- March net profit margin fell to 9.0%, impacted by fixed labor cost pressures during the slow Q1 season.
- Positive outlook on the accelerated commercialization of AI agents in retaining employee knowledge, improving production efficiency, and C-end multimodal content generation.
- Maintain Buy ratings on SenseTime, Meitu, Hundsun, and Tuya Intelligent.
Report interpretation
Overview
This report tracks key operational indicators for the China software industry in March 2026 and Q1. Data shows that while March revenue year-over-year growth slightly slowed to 11.6%, the industry overall remained in double-digit growth. With the SME PMI rising back into expansion territory in April, and increased enterprise spending on generative AI tools (particularly AI agents), institutions expect Q2 industry revenue to improve sequentially. The report focuses on the dominant position of IT services, reasons for margin volatility, and reiterates Buy ratings on multiple AI and vertical software leaders.
Core views
Sector Growth and Profitability Performance: In March 2026, total revenue of registered software enterprises in China grew 11.6% year-over-year to RMB 1.3 trillion, slightly below the 11.7% growth rate of Jan-Feb, resulting in a Q1 overall revenue year-over-year growth rate of 11.6%. In terms of profitability, March net profit margin was 9.0%, significantly lower than the 12.5% of Jan-Feb, bringing the Q1 overall net profit margin down to 11.2%. The report points out this was primarily due to high fixed employee costs during the slow Q1 season. Segment Performance: IT Services continues as the core driver of the industry, accounting for 67% of total Q1 revenue, with March revenue growing 13% year-over-year. Semiconductor design software, cloud computing, and big data segments performed better than the average. In contrast, security software revenue grew 10% year-over-year in March, embedded system software accounted for 8%. Overseas revenue share further declined to 2.8%. Forward Guidance and AI Trends: Leading indicators show positive signals. The SME PMI rose from 49.3 in March to 50.1 in April, indicating SME IT budgets and demand are recovering. On technology trends, the report emphasizes that the commercialization of AI Agents is accelerating, with application scenarios expanding from internal knowledge retention to diversified production site efficiency improvements. C-end users are also increasingly using multimodal AI models for content generation and personal assistant services. Institutions expect that with seasonal factors improving and AI feature adoption increasing, Q2 industry revenue will achieve sequential growth. Viewpoints on Targets: The report explicitly lists targets with Buy ratings including: SenseTime Technology and Meitu Company in the AI field, Hundsun Technologies in the financial IT field, and Tuya Intelligent in the IoT software field. These companies are considered to benefit from AI product iterations and industry spending recovery.
Analysis framework
The report adopts an analysis framework combining top-down and bottom-up approaches. First, grasp the overall industry sentiment through macro industry data released by the Ministry of Industry and Information Technology (MIIT) (revenue, profit, segment shares); Second, introduce SME PMI as a leading indicator to judge future IT spending trends; Third, deeply analyze the implementation progress and commercialization potential of AI technology (especially AI Agents) at the product end to assess the long-term growth drivers of the industry; Finally, combine specific company product launch plans (such as iFlytek, Meitu) and valuation factors to provide individual stock investment advice.
Methodology notes
Using SMB PMI as a leading demand-side indicator
The report uses the Small and Medium Enterprise Purchasing Managers' Index (PMI) to predict changes in the software industry's demand. PMI above 50 usually indicates economic activity expansion, increased enterprise IT budgets, thereby benefiting software spending.
Segment Contribution Analysis
By splitting the software industry into sub-sectors such as IT Services, Software Products, Embedded Software, and Security Software, analyzing the contribution and growth rate differences of each part to overall revenue, identifying IT Services as the current main growth engine.
AI Agent Commercialization Progress Tracking
The report pays special attention to the transformation of AI technology from concept to actual business application. By tracking enterprise AI agent spending in specific scenarios such as knowledge retention and efficiency improvement, judging new growth points for the industry.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- SenseTime (SenseTime)Beneficiary
- Strengths
- Leader in AI field, benefiting from increased AI agent spending
- Meitu (Meitu)Beneficiary
- Strengths
- Plans to release a series of new AI products at annual events, leading in C-end multimodal AI applications
- Hundsun Technologies (Hundsun)Beneficiary
- Strengths
- Leader in financial IT field, benefiting from financial industry digitalization
- Tuya Intelligent (TUYA)Beneficiary
- Strengths
- IoT software field, benefiting from IoT intelligence
Key data
- March Software Sector Revenue Year-Over-Year Growth Rate11.6%Slightly slower than the 11.7% of Jan-Feb
- Q1 Software Sector Net Profit Margin11.2%March single-month net profit margin was 9.0%, impacted by off-season fixed costs
- April SME PMI50.1Recovered from 49.3 in March, entered expansion territory
- IT Service Revenue Share67%In Q1, IT Services were the largest revenue source in the software sector
- Overseas Revenue Share2.8%Decreased from 3.5% of Jan-Feb
Impact & implications
The report believes that although short-term growth fluctuates slightly, the fundamentals of the China software industry remain robust, especially in IT Services and AI-related areas showing strong resilience. The recovery of SMB PMI presages a turning point for SME digital spending, and the popularity of AI Agents will bring new incremental markets for the industry. For investors, the focus lies on leading enterprises with AI implementation capabilities that benefit from domestic demand recovery.
Risks
- Profit margin pressure caused by Q1 off-season
- Declining overseas revenue share may affect global layout
- AI commercialization process slower than expected
What to watch
- Q2 software sector revenue sequential growth situation
- Continuous trend of SME PMI
- Specific landing cases and spending scale of AI Agents in the enterprise sector
- Progress on release of iFlytek's next-generation AI model and Meitu's new AI products