Internet giants "gather" at Goldman Sachs conference, focusing on the "food delivery war" and "AI opportunities"

Chinese internet giants "gather" at the Goldman Sachs Asia Leaders Conference, with the focus of the meeting centered around the "food delivery war" and AI opportunities. Goldman Sachs stated that competition in food delivery and instant retail is reshaping the industry landscape, while accelerated investment in AI infrastructure is bringing new growth momentum to cloud computing businesses.

On September 8, Goldman Sachs stated in its latest research report that the fierce competition among the three major platforms, Meituan, Alibaba, and JD.com, in the food delivery and instant retail sectors is expected to significantly impact the profits of each company in the third quarter.

Goldman Sachs estimates that the adjusted EBIT (earnings before interest and taxes) for Meituan, Alibaba, and JD.com in the September quarter will decline by RMB 27 billion, RMB 31 billion, and RMB 13 billion respectively, with Meituan expected to report a group loss, and Alibaba and JD.com experiencing year-on-year declines in EBIT of 53% and 97% respectively.

The research report noted that the rapid development of AI technology applications became another focus of this conference. Tencent achieved revenue growth in its advertising and gaming businesses through AI empowerment, while Alibaba Cloud's capital expenditure in the second quarter increased by 57% quarter-on-quarter, adopting a multi-chip strategy to alleviate investors' concerns about uncertainties in overseas chip supply.

Goldman Sachs raised its preference for the cloud computing and data center sub-sector from 5th to 3rd place, maintaining its preference for the gaming and mobility service sectors, continuing to list them as preferred defensive investment targets, while suggesting that investors adopt a "dual approach" stock selection strategy, combining defensive gaming and mobility stocks with aggressive AI beneficiary stocks.

Food Delivery War Reshapes Market Landscape

The fierce competition in the food delivery and instant retail market is redefining the landscape of China's local life service industry. According to Goldman Sachs' analysis, based on Alibaba's expanded rider scale, it is expected that the long-term market share of Meituan, Alibaba, and JD.com in the food delivery and instant retail sectors will ultimately stabilize at a ratio of 5:4:1.

Goldman Sachs raised its expectations for the instant retail market size from the previous RMB 1.5 trillion to RMB 2.2 trillion by 2030, with a compound annual growth rate of 25%, far exceeding the overall e-commerce growth rate of 7%.

Goldman Sachs analysts believe that this upward adjustment is primarily based on the significant investment by e-commerce platforms in instant shopping subsidies, fundamentally changing consumer mindsets, reducing tolerance for waiting times in online shopping, and significantly improving the supply chain.

Goldman Sachs estimates that Meituan's on-demand delivery business will grow by 31% this year, further enhancing the penetration rate of on-demand shopping through category expansion, with 50,000 on-demand delivery front warehouses as of the end of June. Alibaba has also expanded its flash warehouse network to 50,000.

For Alibaba, Goldman Sachs expects that as it focuses on higher quality users and improving rider efficiency, the loss per order will narrow in the quarter ending December. The company is expected to achieve reductions in sales and marketing expenses related to user acquisition and retention, especially during the shopping festival periods in the second and fourth quarters.

Regarding JD.com, although it is expected to continue focusing on food delivery as a new source of traffic acquisition, Goldman Sachs anticipates that the company will accelerate improvements in unit economics from the fourth quarter of 2025 to the first half of 2026, achieving this through potential improvements in sales and marketing efficiency and synergies with JD.com's integrated logistics network

Acceleration of AI Infrastructure Investment

Goldman Sachs pointed out that Chinese cloud computing service providers generally achieved accelerated revenue growth in the second quarter, mainly due to the increase in AI capital expenditures 3-6 months ago, especially during the investment peak in the fourth quarter of 2024.

Alibaba Cloud performed the best, with cloud computing revenue growth accelerating from 18% in the first quarter to 26% year-on-year, and AI revenue achieving triple-digit growth for the eighth consecutive quarter, accounting for 20% of external cloud revenue contributions.

Goldman Sachs believes that this growth is primarily driven by the increasing training and inference demands across various industries.

Tencent Cloud continues to prioritize providing AI computing capabilities for its internal gaming and advertising businesses while achieving significant revenue growth in international markets, adding new clients such as GoTo.

Baidu Cloud has achieved differentiated competition through its full-stack capabilities and stable recurring AI software revenue streams, with cloud revenue growing 27% year-on-year.

Kingsoft Cloud has shown strong growth in AI-related revenue, mainly benefiting from robust AI training demand and needs from the Xiaomi and Kingsoft ecosystems, including Xiaomi's training requirements in large language model development and assisted driving, as well as applications like WPS copilot.

Goldman Sachs believes that with the application of multi-chip strategies among cloud computing service providers, concerns of early investors regarding uncertainties in overseas chip supply should be alleviated. More models and AI assistants are expected to be launched in the next 3-6 months, which will maintain investor interest in AI themes.

Opportunities in the Data Center Sector

Research reports indicate that despite the relatively calm AI demand in China's data centers in the second quarter, mainly due to anticipated supply bottlenecks, the revenue and EBITDA performance of GDS and VNET exceeded expectations.

The management attitude of GDS's China business has shifted from a previous focus on deleveraging to a growth-oriented approach, meaning more aggressive capital expenditures to shorten delivery cycles. The company has successfully monetized assets through new financing channels such as c-REITs and ABS issuance, achieving capital recycling and balance sheet improvement.

VNET's management believes there is high visibility for demand recovery, expressing confidence that third-quarter order volumes will exceed second-quarter levels and are expected to approach first-quarter levels. The company reiterated its long-term goal of increasing asset management capacity to 10GW over the next decade.

As NVIDIA is working with the U.S. government to obtain approval for the sale of Blackwell-based products in China, Goldman Sachs expects that if such chip variants receive approval from both the U.S. and China, new order volumes could increase by the end of 2025 or early 2026.

Goldman Sachs Suggests: Balance Between Defense and Offense

Goldman Sachs has adjusted its preference ranking for sub-sectors within the Chinese internet sub-sector, with gaming and mobility services continuing to rank in the top two, while cloud computing and data centers have significantly risen from fifth to third place. This adjustment reflects the surge in AI demand and the improved growth prospects for Alibaba Cloud.

In the face of a complex market environment, Goldman Sachs maintains a dual investment strategy: defensive gaming (Tencent, NetEase) and mobility (Didi, Manbang Group), as well as offensive cloud computing/data centers (Alibaba, GDS, VNET) and e-commerce (Pinduoduo). **

In terms of valuation, the Chinese internet sector is currently trading at a 12-month forward price-to-earnings ratio of 16 times, which still shows a significant discount compared to the 23 times of the U.S. internet sector. Goldman Sachs believes that with the continued penetration of AI applications and the recovery of cloud computing demand, there is room for valuation recovery worth looking forward to.