Goldman Sachs 720 Viewpoint: Preliminary Outlook on China Internet Performance, Trump-Xi Meeting Strategy, Tech and Consumer Stock Updates

Overview

This report is a collection of Goldman Sachs multi-asset, multi-industry strategy and individual stock updates. Core coverage includes Q1 performance outlook for major China Internet giants, strategy before US-China leader meeting, adjustment of US macro interest rate forecasts, tech hardware (optical modules/connectors), game consoles (Nintendo/Sony), consumer (dining/jewelry/appliances/auto), and financial sector latest views. The report generally maintains a positive attitude towards stock selection opportunities but is more cautious regarding macro interest rate paths.

Core views

China Internet Sector: Expectations for Q1 performance show divergence, revenue grows steadily, cloud business is the highlight, but increased AI capital expenditure and investment gains/losses volatility may impact profits. Maintain Cloud & Data Centers as the preferred subsector (GDS, VNET, Alibaba, Kingsoft Cloud), followed by E-commerce & Mobile, with Gaming & Entertainment ranked third. Macro & Strategy: Expectation of Trump-Xi meeting brings tactical upside opportunities for China equities; recommend attention to exporters to the US and short covering opportunities in HK stocks. On US macro side, delay expectations for last two Fed rate cuts to December 2026 and March 2027; core PCE inflation expectations remain around 3%; recession probability downgraded to 25%. Tech Hardware: WUS and TFC Optical benefit from AI infrastructure demand; raise earnings forecast and target price (WUS to 142 Yuan, TFC to 436 Yuan). Taiyo Yuden's conservative guidance leaves room for upside; All Ring remains bullish long-term on CPO and advanced packaging opportunities. Gaming & Entertainment: Nintendo lowers target price to 10,500 Yen due to rising costs and reduced Switch 2 shipment assumptions; Sony despite Q4 miss has rich software pipeline, maintains Buy. LY Corp restores Neutral rating. Consumer & Auto: Lao Pu Gold May Day performance met expectations, gross margin has upside potential; Yili and Mengniu show early signs of bottoming out in dairy sector. Overseas growth for Chinese durable consumer goods is key to growth. Toyota guidance below expectations but seen as bottom; Hyundai India new car launch drives sales growth. Finance: OCBC wealth management revenue growth is strong; raise target price to 25.3 SGD.

Analysis framework

Report combines top-down macro strategy with bottom-up individual stock analysis. Macro level analyzes China equity based on historical trading patterns, investor expectations, and risk-return ratio; interest rate forecasts based on inflation data and labor market softening demand. Individual stock level combines performance guidance, cost structure (e.g., component prices, tariffs), product cycle (e.g., Switch 2, new car launches), and valuation levels for earnings forecast adjustments and target price updates. Some companies use SOTP valuation method.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  SOTP Segment Valuation

  Value different business segments separately and sum them up, suitable for diversified companies like LY Corp, reflecting value of each part more accurately.

• Macroeconomic frameworkInterest Rate Three-Factor Decomposition

  Fed Interest Rate Forecast

  Decompose interest rate decision logic based on inflation, growth, and employment data; the report uses this to delay rate cut expectations until inflation is closer to 3%.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  AI Infrastructure Demand Analysis

  Determine growth drivers for companies like WUS, TFC Optical by analyzing supply-demand relationship of products such as AI servers and optical modules.

• Event Gaming and Behavioral FinanceEvent-driven analysis

  Trump-Xi Meeting Expectations

  Analyze short-term impact of political events on asset prices; use historical trading patterns and investor expectation gaps to find tactical opportunities.

Asset mapping & comparison

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

• WUS

  Benefiting from AI infrastructure demand and high-speed connection trends

  Strengths

  Product portfolio upgrade improves gross margin, operational efficiency improvement

  Weaknesses

  Increased capital expenditure

  Risks

  Demand fluctuation

• TFC Optical

  Benefiting from 1.6T optical engine ramp-up and CPO solutions

  Strengths

  Ability to provide integrated solutions, optical module volume expectations raised

  Risks

  Chip supply

• Nintendo (7974.T)

  Game console leader, impacted by costs and new product cycle

  Strengths

  Exclusive software lineup expansion, active console count expected to reach new high

  Weaknesses

  Component prices and tariffs lead to cost increases, Switch 2 shipment assumptions reduced

  Risks

  Hardware sales momentum slowdown

• Sony (SONY.US)

  Entertainment and electronics giant, impacted by memory costs and impairments

  Strengths

  Rich software pipeline (e.g., GTA VI), share buyback program, alliance with TSMC

  Weaknesses

  Q4 operating profit below expectations, memory cost increases

  Risks

  One-time impairment losses

• Lao Pu Gold

  Gold jewelry retailer, brand momentum strong

  Strengths

  Gross margin over 45%, May Day performance met expectations

  Weaknesses

  Gold price volatility

  Risks

  Consumer sentiment recovery slower than expected

• OCBC

  Bank, wealth management driven growth

  Strengths

  Wealth management fee income grew 35%, low credit costs

  Comparison

  Outperformed peers

  Risks

  Macro uncertainty

Key data

• WUS Target Price142 YuanRaised from 127 Yuan, reflecting growth in AI infrastructure demand
• TFC Optical Target Price436 YuanRaised from 271 Yuan, benefiting from ramp-up of 1.6T products
• Nintendo Target Price10,500 YenLowered from 12,300 Yen due to rising costs and reduced shipment assumptions
• Sony Target Price4,100 YenLowered from 4,800 Yen, reflecting memory cost increases
• Lao Pu Gold Target Price1,108 HKDMaintain Buy, gross margin expected to rise
• OCBC Target Price25.3 SGDRaised from 24.7 SGD, wealth management revenue growth strong
• Fed Rate Cut ExpectationsDecember 2026 / March 2027Last two rate cut timing delayed by one quarter
• S&P 500 Capex Forecast2 Trillion USDExpected growth of 33% in 2026, mainly driven by AI

Impact & implications

Report believes AI infrastructure industry chain will continue to enjoy valuation premium; China assets have tactical allocation value before political events; consumer sector needs focus on overseas growth and ability to pass on costs. Investors can adjust holdings based on updated target prices and earnings forecasts in the report, paying attention to performance fulfillment.

Risks

• Inflation stickiness higher than expected leads to further delayed rate cuts
• Progress in China-US relations not meeting expectations impacts market sentiment
• Continuous rise in component costs erodes hardware profits
• Slow recovery in consumer demand affects consumer stock performance
• Gold price volatility affects jewelry sales

What to watch

• Tencent/Alibaba Q1 performance announcement
• Result and subsequent policies of Trump-Xi meeting
• Fed inflation data and labor market report
• Nintendo Switch 2 sales data
• China durable consumer goods export data overseas