China AI revenue expectations raised, with multi-industry earnings improvement and rating changes in parallel

Overview

This report is a cross-market daily from Goldman Sachs Global Investment Research, covering China AI models, global equity strategy, company results and rating changes, Asian insurance and foreign exchange, and U.S. and Europe Conviction Lists. The overall view is that global equity returns are broadening from a small number of technology leaders to more regions and industries, with earnings growth rather than valuation expansion becoming the main driver; meanwhile, China AI demand, pharmaceutical R&D service orders, gaming content supply, advanced packaging demand, and refining supply constraints provide structural opportunities.

Core views

Demand for China AI models is growing faster than previously expected, but competition will intensify further around performance-to-price ratio, with cloud and data centers remaining the preferred sub-sector. Large-scale capex by global technology giants is depressing free cash flow yields in the technology sector, but improving the growth outlook for traditional industries such as industrials. At the company level, WuXi AppTec's order and earnings visibility has strengthened significantly, Kinsus Technology benefits from potential shortages of AI packaging substrates, and S-Oil benefits from a tight refining balance; by contrast, SICC's R&D and capacity expansion positives are already largely reflected in valuation. In global allocation, falling market correlations and pullbacks in momentum trades are favorable for active stock selection, while the yen is supported by U.S.-Japan joint intervention policy support.

Analysis framework

The report combines industry demand and supply assessments, company quarterly results, management guidance, earnings forecast revisions, relative valuation, target prices, and catalysts for bottom-up analysis, and validates them across assets using global strategy, macro policy, and commodity supply-demand frameworks. Conviction List changes focus on earnings expectation gaps, market share, pricing power, and medium-term profit inflection points.

Methodology notes

• Fundamental forecastingEarnings forecasts and target price revisions

  Update future earnings based on changes in results, guidance, prices, volumes, costs, and margins, and adjust 12-month target prices accordingly.

  This method is used for rating and target price assessments of companies such as WuXi AppTec, SICC, MUFG, Kinsus Technology, and S-Oil; the valuation methods and assumptions for different companies are not fully disclosed in the summary.

• Factor analysisGS Factor Profile

  Compare stocks with the market and industry peers by percentile across four dimensions: growth, financial returns, valuation multiples, and composite score.

  Growth metrics typically include forward sales, EBITDA, and earnings-per-share growth; financial returns include ROE, ROCE, and CROCI; valuation includes P/E, P/B, dividend yield, and enterprise value multiples. The composite score is the average of growth, financial returns, and inverse valuation percentiles.

• M&A analysisM&A Rank

  Assess the probability of a company becoming an acquisition target based on qualitative and quantitative factors, and classify it into three ranks.

  Rank 1 corresponds to a 30% to 50% acquisition probability, Rank 2 corresponds to 15% to 30%, and Rank 3 corresponds to 0% to 15%; Rank 1 or 2 may incorporate M&A factors into the target price.

• Portfolio screeningRegional Conviction Lists

  Select investment recommendations with greater total return potential or higher probability of realization from regionally Buy-rated stocks.

  A stock's addition to or removal from a Conviction List does not equate to a change in the underlying investment rating, but rather represents a portfolio adjustment by the regional investment review committee for high-conviction opportunities.

• Commodity analysisChina policy and global commodity volatility framework

  Assess whether China's policies dampen or amplify volatility in different commodities based on China's role in import demand and supply chains.

  Price-sensitive energy imports and sovereign gold purchases tend to moderate volatility in hydrocarbons and gold, while export restrictions on critical metals may amplify shortages and price volatility in markets outside China.

Asset mapping & comparison

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

• China AI models and cloud and data centers

  Core beneficiary areas of AI demand growth

  Strengths

  Model calls and token demand are accelerating, and the forecast for China AI models' annualized recurring revenue has been raised significantly.

  Weaknesses

  Model prices are falling rapidly, and the earnings realization of individual model companies remains uncertain.

  Comparison

  Goldman Sachs prefers cloud and data centers over individual model suppliers because they can benefit from the expansion of overall industry token demand.

  Risks

  Intensifying performance-to-price competition, price pressure from open-source models, and capex returns below expectations.

• WuXi AppTec (603259.SS)

  Beneficiary of upgraded results and guidance

  Strengths

  Revenue, earnings, and backlog growth are strong, with solid order momentum in small molecules, TIDES, and testing businesses.

  Weaknesses

  After earnings expectations are raised, the market's requirements for subsequent execution also increase.

  Comparison

  Compared with general pharmaceutical R&D service companies, its order expansion and earnings upgrades are more notable.

  Risks

  Slower order growth, project execution risk, and changes in the industry and regulatory environment.

• SICC

  Silicon carbide and advanced packaging thematic stock

  Strengths

  Strong R&D capability, with long-term potential in 12-inch silicon carbide substrates as well as AI advanced packaging and AR applications.

  Weaknesses

  Existing positives are already largely reflected, and price declines in 6-inch and 8-inch substrates are pressuring revenue and gross margin.

  Comparison

  The long-term technology outlook remains positive, but current valuation upside is weaker than before.

  Risks

  Continued product price declines, slower-than-expected absorption of capacity expansion, and delayed introduction of 12-inch products.

• China gaming and internet entertainment

  Low valuation and earnings resilience theme

  Strengths

  The industry grew 12% year over year in the first half, new content and upgrades to evergreen games support revenue, and valuations are near five-year lows.

  Weaknesses

  Industry growth depends on content schedules and player spending, and individual stock performance may diverge.

  Comparison

  Goldman Sachs is particularly constructive on NetEase and Tencent's gaming resilience, Bilibili's advertising and profit growth, and Tencent Music Entertainment's risk-reward.

  Risks

  New games underperforming expectations, regulatory changes, and rising user acquisition costs.

• China new energy vehicle manufacturers

  Theme of divergence in volumes, selling prices, and margins

  Strengths

  BYD, Leapmotor, and NIO are expected to benefit from volume growth, product mix improvement, and margin expansion.

  Weaknesses

  XPeng has high R&D investment, while Li Auto faces pressure on sales volume and product mix.

  Comparison

  The report expects net profit at BYD, Leapmotor, and NIO to grow 34%, 41%, and 102% year over year, respectively, while XPeng and Li Auto are expected to decline.

  Risks

  Price competition, model cycle missteps, R&D expenses exceeding expectations, and overseas expansion falling short of expectations.

• Kinsus Technology

  Beneficiary of improved supply-demand conditions for AI advanced packaging substrates

  Strengths

  Increased package size and layer counts for next-generation AI products may create ABF substrate shortages in 2027 to 2028.

  Weaknesses

  The 2026 earnings forecast was still cut by 5%, and near-term results realization may lag.

  Comparison

  Compared with traditional electronics demand, AI-related ABF substrates provide stronger support for pricing and gross margins.

  Risks

  AI demand falling short of expectations, accelerated capacity expansion eliminating shortages, and substrate price increases failing to materialize.

• S-Oil

  Beneficiary of tighter refining supply and a free cash flow inflection point

  Strengths

  High exposure to middle distillates, limited global new capacity, and the Shaheen project may drive free cash flow improvement in early 2027.

  Weaknesses

  Earnings remain affected by crude premiums, crack spreads, and project capex.

  Comparison

  It has relatively favorable middle distillate exposure and risk-reward within the refining sector.

  Risks

  Refining margins retreating, idled capacity returning, and project delays or cost overruns.

• Yen

  U.S.-Japan policy intervention and Bank of Japan rate hike theme

  Strengths

  The first U.S.-Japan joint FX intervention in fifteen years sends a strong signal to curb further yen depreciation.

  Weaknesses

  The pace of gradual rate hikes is slow, and interest rate differentials may still limit yen appreciation.

  Comparison

  The FIMA repo facility allows Japanese authorities to borrow dollars for intervention, reducing the market impact from selling U.S. Treasuries.

  Risks

  Short-lived intervention effects, U.S.-Japan interest rate differentials remaining high, and changes in the policy path.

• Gold, critical metals, TTF, and crude oil

  Cross-commodity allocation related to China policy and geopolitical supply risks

  Strengths

  Gold is supported by sovereign purchases, critical metals are supported by supply shortages outside China, and TTF can more directly reflect certain Middle East natural gas risks.

  Weaknesses

  Different commodities have widely varying sensitivities to China policy and geopolitical shocks.

  Comparison

  The report views TTF as a more appropriate hedge for Strait of Hormuz risk than crude oil, and recommends including metals in a broad inflation hedge.

  Risks

  Changes in China demand, export policy adjustments, easing geopolitical tensions, and a stronger U.S. dollar.

Key data

• China AI models annualized recurring revenue forecastUS$13bnEnd-2026 forecast, previously US$10bn.
• Z.AI and MiniMax revenue forecast adjustments+35% / +63%Goldman Sachs' upward revisions to 2026 revenue forecasts for the two companies.
• SICC rating and target priceNeutral; Rmb104Downgraded from Buy, with the previous 12-month target price at Rmb115; 2026 to 2028 net profit forecasts cut by 6% to 8%.
• China online gaming industry growthYoY +12%In the first half of 2026, driven by new content supply and upgrades to evergreen games.
• WuXi AppTec second-quarter growthRevenue +47.7%; non-IFRS earnings +91.7%Both are year-over-year growth rates and significantly exceeded expectations.
• WuXi AppTec full-year revenue growth guidance35% to 39%Refers to 2026 year-over-year revenue growth from continuing operations.
• WuXi AppTec target priceHK$192.70 / Rmb172.4012-month target prices for the H-shares and A-shares, respectively.
• MUFG first-quarter net profit¥809.4bn, YoY +48%Earnings were driven by loan growth, widening spreads on domestic corporate loans, and market-related businesses.
• Kinsus Technology substrate price expectationsApproximately +8% QoQABF and BT substrate prices are expected to rise in the third and fourth quarters of 2026.
• S-Oil earnings forecast2026 EBITDA forecast +31%Third-quarter operating profit is expected to increase 62% quarter over quarter, and the 12-month target price was raised to W163,000.
• Xinyi Solar earnings forecast2026 EBITDA forecast +57%Mainly reflecting increased shipments, lower costs, and improved domestic and overseas supply-demand conditions.
• PICC Group H rating and target priceBuy; HK$7Upgraded from the previous rating, supported by improved P&C underwriting results and a better risk-reward profile.
• Bank of China overseas business contributionClose to 30% of group pre-tax profitCross-border financial demand and RMB internationalization support long-term earnings diversification.
• Bank of Japan rate hike expectationsAbout once every six monthsThe next rate hike is expected in January of the following year, and U.S.-Japan joint FX intervention is expected to ease yen depreciation pressure.
• Global equity research coverage3,104 stocksNumber of stocks with investment ratings by Goldman Sachs Global Investment Research as of July 1, 2026.

Impact & implications

At the portfolio level, investors can focus on cloud and data centers, advanced packaging, and enterprise software opportunities from the diffusion of AI demand, while also seeking returns in gaming, pharmaceutical R&D services, refining, and selected financial stocks where valuations are near lows and earnings are resilient. Global technology capex may continue to pressure free cash flow yields in the technology sector, but its spillover effects are positive for industrial and infrastructure supply chains. U.S.-Japan joint intervention increases the policy risk of continuing to short the yen; in commodity allocation, metals can be used as a broad inflation hedge, TTF is viewed as a more appropriate hedge for Strait of Hormuz risk than crude oil, and gold presents a more attractive entry point.

Risks

• Escalating performance-to-price competition among China AI models, with open-source and low-price strategies potentially compressing revenue monetization and profit margins.
• Continued increases in capex by large technology companies may further erode free cash flow yields and trigger sector valuation downgrades.
• Price competition in silicon carbide substrates, automobiles, and other manufacturing industries may weaken revenue and gross margins.
• Company earnings forecasts depend on management guidance, order continuity, and cost improvements, and actual results may fall short of expectations.
• Refining, gold, natural gas, and critical metals are highly sensitive to geopolitical conflicts, supply disruptions, and China policy.
• There is execution and sustainability uncertainty around U.S.-Japan FX intervention and the Bank of Japan's policy path.
• Conviction List changes do not guarantee excess returns and do not equate to changes in underlying investment ratings.
• Exchange rate fluctuations may affect prices, revenue, and investment returns of cross-market assets.

What to watch

• China AI model token consumption, pricing changes, and speed of enterprise customer adoption.
• Whether Z.AI and MiniMax revenue upgrades can be realized, and how valuations digest the target price cuts.
• WuXi AppTec's backlog, TIDES business, and execution progress on 2026 revenue growth guidance of 35% to 39%.
• SICC's mass production pace for 12-inch silicon carbide substrates and prices of small- and medium-size products.
• China gaming second-quarter results, new content launches, and advertising monetization trends.
• Divergence in NEV companies' sales volumes, average selling prices, R&D expenses, and EBIT margins.
• ABF substrate price increases in the second half of 2026 and potential supply shortages in 2027 to 2028.
• Russian and Middle Eastern refining capacity disruptions, middle distillate crack spreads, and progress on S-Oil's Shaheen project.
• USD/JPY trends after U.S.-Japan joint intervention and the timing of the Bank of Japan's next rate hike.
• Earnings expectation gaps and catalyst realization for companies newly added to the U.S. and Europe Conviction Lists.