UBS's Fang Jincong: Market Overprices AI Spending Burden, Underestimates Potential Upside Opportunities
Fang Jincong, Head of China Internet Research at UBS, pointed out that the current market has overpriced the burden of AI spending while underestimating potential upside opportunities. He believes that hyperscale cloud vendors will invest about one year of core cash flow into infrastructure, while application-driven platforms invest through R&D expenses and are more flexible; valuation discussions should distinguish between temporary investments, recurring participation costs, and permanent business changes. Three structural changes—capital, efficiency, and ecosystem—will shape the landscape of the AI era, benefiting leading internet platforms with ample capital, full-stack capabilities, and mature customer touchpoints.
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People's Financial News, October 30 (Xinhua) — Fang Jincong, head of China internet industry research at UBS, noted in his latest view that against the backdrop of uncertainty over how AI will change information discovery, content, and enterprise workflows, hyperscale cloud vendors are spending an amount equivalent to about one year of core cash flow on infrastructure investment, while application-driven platforms invest through R&D expenses and are more flexible. Therefore, valuation discussions should distinguish temporary investments, recurring participation costs, and permanent business changes, whereas the current market has overpriced the AI spending burden while underestimating potential upside opportunities. He also said that three structural changes will shape the industry landscape in the AI era: capital, efficiency, and ecosystem. This favors leading internet platforms with ample capital, full-stack capabilities, and mature customer touchpoints and scenario information, while also leaving opportunities for independent labs with differentiated technologies or specialized advantages.