2025 China AI "Singularity" is approaching? JP Morgan: Application explosion is imminent, DeepSeek ignites computing power demand, Alibaba may become the biggest winner

Do you remember 2010? The wave of mobile internet swept in, reshaping the entire internet landscape. Now, analysts at JP Morgan believe that China's AI sector is standing on a similar "singularity."

In a research report released by JP Morgan on the 9th, the Alex Yao team pointed out that 2025 will be a key year for the explosion of generative AI (GAI) applications in China. The report divides the development of GAI in China into four stages and proposes corresponding investment strategies for each stage. The core view is that with the rise of domestic large models like DeepSeek, the application of GAI is accelerating its penetration and will trigger a huge demand for computing power.

So, who will take the biggest slice of the cake in this AI feast? JP Morgan's answer is: Alibaba.

JP Morgan believes that the development of GAI in China is currently at the beginning of the second stage, and Alibaba is a key player in the IAAS value chain, expected to outperform its peers in the second stage of GAI development and has the potential to become a beneficiary in the third stage of applications. Additionally, KUAISHOU-W may be underestimated, and Baidu is both a "shovel seller" and a "gold digger."

Four Stages, Step by Step: JP Morgan's AI Investment Roadmap

JP Morgan believes that the development of generative AI in China will go through four distinct stages, each with different investment focuses:

• Stage One: Development of Large Language Models (LLM). This is the foundational stage, focusing on building and optimizing LLMs.
• Stage Two: Application of generative AI in existing applications and services. Currently, China is at the beginning of this stage. Enterprises are beginning to try integrating GAI into existing businesses, but specific value creation models are still being explored.
• Stage Three: Surge in Internet service consumption. As GAI applications become widespread, internet operators will gain significant financial benefits.
• Stage Four: Emergence of native generative AI "killer applications." These applications will fundamentally change the competitive landscape and bring about new business models.

JP Morgan believes that DeepSeek's launch of V3 and R3 LLM in January 2025 will be a key catalyst for igniting GAI applications. Since the end of January, DeepSeek's LLM has been widely applied in consumer-facing applications across various industries. As of March 7, the top three free applications in China by download volume are all GAI applications, similar in function to ChatGPT.

Additionally, feedback from internet companies also indicates that DeepSeek's LLM is being widely used in backend operations.

Explosive Demand for Computing Power, Who is the "Shovel Seller"?

Since the explosion of generative AI applications will lead to a surge in demand for computing power, who will become the "shovel seller" in this "gold rush"? JP Morgan is focusing on the infrastructure as a service (IAAS) value chain.

The report believes that in the second stage of GAI development, companies in the IAAS value chain will perform outstandingly, and their revenue expectations are likely to be positively revised. Alibaba is the most favored target by JP Morgan in this field.

"We believe Alibaba is an IAAS value chain stock, and its performance will surpass other internet peers in the second phase. It also has the potential to become a beneficiary of the third phase of applications."

Although Tencent holds a significant share of the IAAS market in China, JP Morgan prefers to view it as a beneficiary of AI applications. The reason is that even if investors assess the value of Tencent Cloud separately, its contribution to Tencent's current market value is only about 10%. In contrast, Tencent is actively integrating GAI into its existing product portfolio, which is expected to enhance user stickiness and bring growth in advertising revenue in 2026 and beyond.

KUAISHOU is undervalued, and Baidu is both a "shovel seller" and a "gold miner"?

In addition to Alibaba and Tencent, JP Morgan also mentioned an "undervalued" AI beneficiary: KUAISHOU.

The report suggests that AI (especially after the release of DeepSeek) will significantly enhance user engagement and monetization capabilities of KUAISHOU's main application. Furthermore, KUAISHOU's AI video/image generator Kling (which is expected to have over 6 million users by December 2024) has a deep synergy with the KUAISHOU app in video generation and has enormous monetization potential in commercial verticals such as e-commerce and professional content production.

JP Morgan positions Baidu as a beneficiary of the IAAS cloud value chain and potential GAI applications. Therefore, the company's stock price outlook depends on the transformation of its core advertising business and cloud business narrative.

The report believes that in terms of core advertising business, general search can enhance its value proposition to consumers by adopting gen AI in search results pages, thereby reclaiming advertising market share from mobile-native content platforms. On the other hand, general search may also be disrupted by AI search operators that integrate AI search into their vast natural traffic