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Recently, China Galaxy Securities released a deep-dive report on the media and internet industry as part of its AI Bubble series. The report indicates that the current artificial intelligence wave is not a repeat of the "irrational bubble" from the internet era, but rather the result of a multi-dimensional interplay between national strategic planning, corporate development strategies, and market sentiment. The industry is accelerating its transition from a "rational bubble" towards "pragmatic growth," presenting new development opportunities and investment directions for the media and internet sector.
The core viewpoints of the report are as follows:
**Internet Bubble vs. AI Wave: Historical Review and Core Differences** The report revisits the 1995-2002 internet bubble, which progressed through four distinct phases: technological infancy, capital frenzy, profitability skepticism, and eventual burst. During that period, the IPO market was exceptionally buoyant, with a multitude of unprofitable, even zero-revenue companies commanding sky-high valuations, leading to a severe disconnect between valuation metrics and fundamental business health. This ultimately triggered an industry shakeout, resulting in the collapse of nearly 900 internet companies and the acquisition of 3,800 others.
In stark contrast, the current AI wave demonstrates a significantly different developmental logic. From a funding perspective, AI-themed startups rely more heavily on abundant private financing. In the first three quarters of 2025 alone, 19 global AI firms raised a staggering $65 billion, accounting for over 75% of total private market funding. This reduces the pressure for hasty IPOs to cash out, thereby helping to avoid market overheating. Concurrently, capital is more concentrated on mature, financially sound enterprises like NVIDIA and Microsoft. These industry leaders possess robust operating cash flows, providing a solid foundation for sustained investment in AI.
On the business model front, the supply-demand structure of the AI wave is more rational. The supply side is dominated by leading tech giants with substantial capital, talent, and technological prowess, offering high-barrier, highly scarce products like large language models, cloud services, and AI chips. The demand side is centered on enterprise-level users, particularly in well-capitalized sectors such as finance and pharmaceutical R&D. Furthermore, after more than two decades of digital transformation, various industries have developed mature business models and possess vast data processing needs. This allows AI to rapidly enhance production and operational efficiency, enabling tangible value creation. Additionally, AI applications leverage established cloud computing and mobile internet infrastructure, bypassing the need for extensive physical construction. This drastically shortens the time-to-market for products and significantly compresses the commercialization cycle.
**Technological Iteration and Scale Expansion: AI Industry Enters the Fast Lane** The report shows that global AI technology is evolving from the passive analysis of Phase 1.0 and the active content generation of Phase 2.0 towards Phase 3.0 (AI Agents) capable of multi-modal perception and autonomous decision-making. Since 2025, domestic large language models have experienced an open-source surge, with models like DeepSeek, Baidu's ERNIE, and Alibaba's Tongyi Qianwen undergoing continuous iteration, making constant breakthroughs in areas such as reasoning capabilities and multi-modal integration.
Regarding scale expansion, since 2020, the four major US tech giants have persistently increased their capital expenditures and R&D investments in the AI domain. By Q3 2025, their quarterly capital expenditure had multiplied compared to Q1 2020, primarily directed towards building AI infrastructure like data centers and chips. Leading domestic tech enterprises are also keeping pace with this industrial wave, exhibiting phased rapid growth in capital expenditure since 2024, marking China's entry into a phase of scaled investment in AI. Cloud business has become a critical pillar for AI-related earnings. Cloud service revenues for both Chinese and American tech giants continue to expand, forming a mutually reinforcing "Cloud + AI" development paradigm where cloud provides the computational power and data support for AI, and AI, in turn, adds value to cloud services, achieving substantive breakthroughs in technological commercialization.
**Investment Recommendations: Focus on Core Assets and AI Application Tracks** The report posits that China's AI industry, constrained by import restrictions on computing power, possesses an inherent demand for domestic substitution. Coupled with the support of a vast domestic market, its bubble risk is more controllable. The report recommends focusing on two primary investment directions:
The first direction involves Hong Kong-listed internet giants that are continuously ramping up AI investment. Tencent Holdings and Alibaba - W demonstrate stable business growth and solid fundamentals while deepening their AI deployments. Kuaishou - W, leveraging its leading AI-powered video tool capabilities, is well-positioned to benefit significantly from the empowerment AI technology brings to the video industry.
The second direction encompasses AI applications and related players across the industry chain. As AI technology accelerates its disruption across sectors, the commercial potential of downstream applications is gradually being unlocked. It is advisable to monitor firms like Zhide Mai in the "AI + E-commerce" sphere, BlueFocus in the "AI + Marketing" field, and Kunlun Tech (Rights Protection), which is continuously expanding its AI application scenarios.
The report also cautions that industry development requires vigilance against risks such as heightened external uncertainties, short-term adjustments in market sentiment and capital flows, and potential underperformance in the development of AIGC technologies and their applications. Looking ahead, as technological iteration accelerates and commercialization gains momentum, AI will persistently reshape the ecosystem of the media and internet industry, injecting powerful momentum for its high-quality development.
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