NAVIGATING CHINA INTERNET & AI MODELS: What to expect into mega-cap 3Q prints; key AI developments / top app highlights

For the upcoming China internet mega-cap 3Q earnings, we anticipate key themes to center around 1) mixed top-line set-up, with the soft consumption continuing to weigh on eCommerce/ads/local services, while Games (our most preferred sub-sector)/Cloud/Internet verticals offer more defensive growth. 4Q outlook will be the key to watch, noting weak eCommerce GMV growth since October, while we see further cloud growth acceleration and improving transaction platforms' bottom-line profit growth (on rationalizing food delivery losses yoy) as potential bright spots. 2) Focus on FCF & capex funding, where we expect sequentially lower AI capex into Dec-qtr and Mar-qtr from hyperscalers on near-term tight chip supply, yet continue to expect higher capex spend over 2027-28E factoring in higher compute purchase prices (memory & other subsystems) and domestic compute capacity ramp-up; 3) AI model improvements and monetization, where we anticipate further model launches/updates with Qwen4, MiniMax M3