In the past two weeks, Deepseek has single-handedly pushed Chinese tech stocks to a peak. However, behind this wave, it is difficult to distinguish which are truly value-driven and which are merely speculative.
Morgan Stanley's analyst team led by Yang Liu found in their latest report that in the current market environment, the Chinese data center (IDC) sector has become one of the most attractive investment directions due to its significant valuation discount and potential for performance improvement. Although the valuations of management software companies are nearing global levels, the valuations of office software and CDN (Content Delivery Network) companies are significantly higher than their global peers, prompting investors to pay more attention to the sustainability of their fundamentals.
The specifics are as follows:
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The valuation of data center (IDC) companies is about 50% lower than their global peers. This discount is particularly prominent in the current market environment, and the report suggests that with the increase in capital expenditures for large-scale AI, IDC companies are expected to see significant improvements in EBITDA, thereby driving valuation recovery.
The valuation/sales ratio of management software companies is nearing that of global peers, but their revenue growth prospects are slightly weaker, and their profitability is significantly lower.
The valuations of office software and CDN companies are more than three times higher than their global peers, indicating a substantial risk of a bubble.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6beada78-b4b1-4f39-bc6e-1861784cd749.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6beada78-b4b1-4f39-bc6e-1861784cd749.png"/>
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The report further points out that the valuations of the technology sector in A-shares are generally high, while Chinese tech stocks in Hong Kong and the U.S. offer more attractive investment opportunities.
Morgan Stanley also reviewed the lessons learned from the AI boom in China in the second quarter of 2023: Fundamental beneficiaries (such as CPO-related companies) saw their stock prices continue to rise, while other companies experienced significant declines after the boom.

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According to Morgan Stanley's calculations, the valuation of Chinese data center companies is discounted by about 50% compared to their global peers, management software companies are close to the global peer level, while office software and CDN companies are more than three times higher than their global counterparts

- In the past two weeks, Deepseek has significantly boosted Chinese tech stocks, but distinguishing between genuine value drivers and speculative trends remains challenging.  
- Morgan Stanley's Yang Liu analyst team reports that the data center (IDC) sector is particularly attractive due to a 50% valuation discount and potential performance improvements, with companies like GDS and 21Vianet likely to benefit.  
- The report highlights that while A-share tech valuations are high, Chinese tech stocks in Hong Kong and the U.S. present more appealing investment opportunities, reflecting lessons learned from the AI boom in Q2 2023.

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