Strong Kling AI momentum; AI investment pressures profits but the core platform remains broadly stable

Overview

This report summarizes the key takeaways from Goldman Sachs' NDR meeting with Kuaishou's CFO and investor relations team on March 27, 2026. Investor attention centered on Kling AI's growth momentum and competitive landscape, the incremental capital expenditure and R&D spending driven by AI investment, and the slowdown in advertising growth. Goldman Sachs maintains a Buy rating on Kuaishou with a 12-month target price of HK$75.

Core views

The core view is that Kling AI continues to show strong momentum in video generation and is likely to generate significant ARR by the end of 2026; Kuaishou will increase AI-related capital expenditure and R&D spending, which will pressure profits in the near term, but profitability in the core platform excluding AI investment remains broadly stable; advertising growth is slowing due to weak overseas advertising in Brazil and domestic tax/compliance impacts, but external advertising should benefit from local-services and content-consumption verticals and is expected to perform better than e-commerce in-cycle ads.

Analysis framework

The report is mainly based on management NDR discussions, company operating data, Goldman Sachs' forecasting model, the P/E valuation framework, GS Factor Profile, and the M&A Rank framework to assess Kuaishou's core platform, Kling AI monetization, ad growth, and profit impact.

Methodology notes

• Valuation methodsP/E valuation

  The target price is based on 15x target P/E applied to the 2026-2027E average EPS.

  Goldman Sachs maintains a Buy rating on Kuaishou, with a 12-month target price of HK$75, using a 15x target P/E applied to the 2026-27E average EPS.

• factor_profileGS Factor Profile

  Compares stocks across four dimensions: growth, financial returns, valuation multiples, and composite indicators.

  This framework uses Goldman Sachs forecast metrics to calculate percentiles: growth looks at revenue, EBITDA, and EPS growth; financial returns look at ROE, ROCE, and CROCI; valuation multiples look at P/E, P/B, EV/EBITDA, etc.; and the composite percentile combines growth, returns, and valuation.

• event_researchNDR management interview

  Validate business trends, investment plans, and competitive judgments through management discussions.

  This report comes from an NDR meeting with Kuaishou's CFO and investor relations team, focusing on management's comments on Kling AI, AI spending, ad growth, and core platform profitability.

• corporate_activityM&A Rank

  Goldman Sachs classifies the probability of being acquired into levels 1 to 3.

  Kuaishou's M&A Rank is 3, representing the low-probability range of 0%-15%, and its impact on the target price is considered immaterial.

Asset mapping & comparison

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

• 1024.HK

  Company stock covered by the report

  Strengths

  Kling AI has strong revenue momentum, a feedback loop from professional creators, and long-term advantages in video data and multimodal content understanding; core platform profits remain relatively stable after excluding AI investment.

  Weaknesses

  AI investment is driving higher capital expenditure and R&D expense, ad growth is slowing, and overseas advertising, especially in the Brazilian market, is under pressure.

  Comparison

  Management believes there is no fundamental difference between the Kling, Seedance, and Veo technology paths; Seedance is more consumer-facing and ease-of-use oriented, while Kling is more professional-tool oriented, emphasizing physical realism, detail rendering, large-scene processing, and shot transitions.

  Risks

  Ad budget recovery is slower than expected, Kling monetization is weaker than expected, user engagement growth is slower than expected, profitability is below expectations, and AI progress is weaker than expected.

Key data

• RatingBuyRating in place since September 4, 2022.
• 12-month target priceHK$75.00Based on P/E valuation, with a target P/E of 15x.
• Current priceHK$46.08Disclosed on the report cover.
• Implied upside62.8%Calculated from target price relative to current price and disclosed in the report.
• Market capitalizationHK$196.5bn / US$25.1bnDisclosed in Key Data.
• Enterprise valueHK$218.2bn / US$27.9bnDisclosed in Key Data.
• 3-month average daily turnoverHK$2.7bn / US$348.3mnDisclosed in Key Data.
• 2026E revenueRmb148,872.3mnGoldman Sachs forecast table.
• 2026E EPSRmb4.06Goldman Sachs forecast table.
• 2026E P/E10.0XGoldman Sachs forecast table.
• 2026E incremental AI capexabout Rmb11bnMainly for Kling and large-model related investments.
• 2026E incremental R&D expenseabout Rmb1bnTo attract and retain AI talent.
• Kling AI 2026E annual revenueUS$356mnThe chart title shows Goldman Sachs expects Kling AI's total annual revenue to reach US$356mn in 2026E.
• Kling AI 4Q26E quarterly revenueUS$105mnThe chart shows about US$58mn from professional users and about US$47mn from enterprise users.

Impact & implications

For investors, Kuaishou's investment thesis is shifting from pure platform profit improvement toward AI video generation monetization. If Kling can continue to maintain SOTA capabilities and increase the share of B-side revenue, it may enhance long-term valuation optionality; however, near-term AI capex, depreciation and amortization, server bandwidth, and R&D expenses will weigh on profits, and slower ad growth will also limit the upside slope of the core business.

Risks

• Ad budget recovery is slower than expected.
• Kling commercialization and monetization are weaker than expected.
• Overall user engagement growth, measured by DAU multiplied by average time spent per DAU, is slower than expected.
• AI-related capital expenditure, depreciation and amortization, server bandwidth, and R&D expenses put greater pressure on profits.
• AI model capabilities or product iterations are weaker than expected.
• Overseas advertising markets such as Brazil improve more slowly than expected.
• Domestic e-commerce advertising is affected by tax and compliance factors, reducing merchants' and creators' willingness to spend.

What to watch

• Quarterly Kling AI revenue, ARR, and the change in the share of B-side revenue in 2026.
• Kling's model capability ranking and user feedback relative to Seedance, Google Veo, and other competitors.
• The execution pace of the Rmb11bn incremental capital expenditure in 2026 and its impact on depreciation, bandwidth costs, and gross margin.
• Whether the Rmb1bn incremental R&D expense effectively improves AI talent retention and model iteration advantages.
• Whether the growth of domestic non-e-commerce advertising, local services, and content-consumption verticals can offset the slowdown in e-commerce advertising.
• Whether the high-single-digit year-on-year decline in Brazil online marketing revenue improves.
• Whether Kuaishou's core platform profit excluding AI investment can continue to track revenue growth.