NAVIGATING CHINA INTERNET & AI MODELS: What to do from here; key themes & refreshed ideas into year-end

Coming out of the results season, and the Asia Leaders and Communacopia + Technology conferences, we highlight key themes & focus areas across the China Internet sector & AI models and refresh our sub-sector preferences (lifting Games/Entertainment on defensive growth and Internet verticals/Education on compelling valuations) and the key stock ideas accordingly (Tencent, NetEase, Alibaba, VNET, New Oriental (new), Beike (new), JD and MiniMax). Key investor themes/focuses have surrounded: 1) the mixed set up for 3Q results, where soft consumption weighs on eCommerce/Ads/Local services growth while Games/Cloud/Internet verticals offer more defensive growth; 2) AI cloud growth with potential for further beat-and-raise on tight compute demand (we lift Alibaba Cloud growth to 53% for the Sep quarter, prior 50%), yet with concerns on sources of capex funding and sustainability of elevated ROICs;