As U.S.-Iran negotiations are scheduled, a global market rebound has commenced. The current focus of the A-share market's upward momentum is concentrated on the ChiNext Board. This week, the ChiNext Index surpassed its peak from the previous bull market, yet investors are divided over whether there remains significant room for further gains. Considering factors such as the growth potential of heavyweight constituents in computing power and new energy, along with the index's valuation remaining at relatively low levels, we believe the ChiNext Index still represents the most cost-effective direction within the A-share market. In terms of sector allocation, we recommend exploring high-performance sectors from the first quarter. Key areas to watch include: new energy, energy storage, lithium battery materials, AI computing power, innovative drugs, semiconductors, and consumer sectors.
Recent developments, including the scheduling of U.S.-Iran talks, have triggered a rebound in global markets. Currently, the primary upward thrust in the A-share market is centered on the ChiNext Board. While the ChiNext Index has broken through its previous bull market high this week, investor opinions are split regarding its potential for further appreciation. From the perspectives of industrial structure and valuation, we argue that the current level of the ChiNext Index around 3600 points is significantly undervalued. In terms of growth potential, the computing power sector benefits from sustained increases in spending by AI giants, whose rising electricity demand indirectly propels the new energy sector upward. Valuation-wise, the ChiNext Index's ten-year price-to-earnings ratio percentile stands at approximately 50%, presenting a more attractive valuation compared to the Shanghai Composite Index and Shenzhen Component Index, whose P/E percentiles exceed 95%. Thus, we maintain that the ChiNext Index remains the most favorable sector in the A-share market.
Regarding sector strategy, first-quarter earnings reports indicate that TMT and cyclical sectors are exhibiting high prosperity and profitability, warranting continued attention. Specifically, computing power remains a dominant theme in Q1 performance, with its influence spreading from core hardware like optical modules and PCBs to ancillary areas such as liquid cooling, computing power leasing, and power supply—collectively termed "computing power+." Benefiting from explosive growth in energy storage demand for AI computing centers, the lithium battery industry is experiencing new structural incremental demand. Representative stocks in this sector showed outstanding Q1 performance, with positive momentum extending throughout the supply chain. The innovative drug sector's vitality is confirmed by both earnings and trading activity, with BD collaborations becoming routine and the pace of global expansion accelerating. The global semiconductor industry is in a strong upcycle driven by AI, with the growth trajectory continuing to steepen.
Key sectors to monitor include: new energy, energy storage, lithium battery materials, AI computing power, innovative drugs, semiconductors, and consumer industries.
The new high for the ChiNext Index is merely the beginning. Recent events, such as the scheduling of U.S.-Iran negotiations, have initiated a global market recovery. The A-share market's main upward drive is currently focused on the ChiNext Board. Although the index exceeded its previous bull market peak this week, investors are debating the extent of remaining upside. After evaluating industrial structure, valuation, and profitability, we conclude that the ChiNext Index continues to offer the best value proposition in the A-share market.
The composition of the ChiNext Index's major constituents has undergone significant changes over the past three bull markets: 1) During the 2013-2015 bull market, TMT sectors held substantial weight in the index, with the information technology sector accounting for up to 40%. However, earnings among ChiNext constituents were highly divergent: the gaming sector led in profit and revenue growth, ranking in the top 25%, while many other companies faced profit pressures, with at least a quarter experiencing quarterly declines in operating profit. This bull market was fueled by favorable securities policies, a shift to comprehensive monetary easing, and speculative themes like "SOE reform" and "Internet+," driving the index to around 3800 points amid improved liquidity and risk appetite. However, due to a lack of sustained fundamental drivers, valuations became excessively high.
2) In the 2020-2021 period, healthcare and new energy sectors dominated the ChiNext Index. The pandemic spurred continuous gains in biomedical stocks, particularly medical devices and vaccines, while the inclusion of "dual carbon" goals in the government work report during the 2021 Two Sessions made carbon neutrality a hot topic. These factors collectively pushed the index to a historically high level around 3600 points.
3) In the current cycle, the index's heavyweight constituents have shifted again, towards computing power and new energy sectors. The current prosperity cycle in computing power is notably stronger than in the previous two bull markets, suggesting that the ChiNext Index at 3600 points is significantly undervalued. Growth potential is substantial, as the computing power sector benefits from ongoing investment by AI giants, with positive effects spreading to sub-sectors like optical modules, liquid cooling servers, and computing power leasing. The associated rise in electricity demand also indirectly boosts the new energy sector. This clear fundamental logic supports the view that the ChiNext Board still has considerable room for appreciation. From a valuation standpoint, the index's ten-year P/E percentile near 50% is much lower than at comparable points in prior bull markets, and it appears more attractive compared to the main board indices with P/E percentiles above 95%.
Given the substantial growth potential and positive trends in computing power and new energy, coupled with the ChiNext Index's low valuation percentile, we judge that as the market begins to fully price in the Q1 earnings trends, the index's advantages in profit growth, valuation, and industrial structure are becoming increasingly evident. The recent new high is likely just the start.
Focusing on high-growth sectors from the Q1 earnings reports remains a key strategy for the ongoing rebound. Sector allocation should prioritize areas showing high prosperity and profitability in Q1 disclosures, particularly TMT and cyclical industries. Computing power continues to be a central theme, with its influence expanding from core hardware to supporting "computing power+" infrastructure. Benefiting from explosive demand for energy storage配套 AI computing centers, the lithium battery industry is seeing new structural growth, with strong Q1 performance from leading supply chain companies indicating broad-based momentum. The innovative drug sector's strength is confirmed by both earnings outperformance and active trading, supported by regular BD collaborations and accelerating global expansion. The global semiconductor industry is experiencing a robust AI-driven upcycle, with growth rates still accelerating.
High-growth and outperforming sectors in Q1 are still concentrated in commodities and TMT hardware technology. Among 169 disclosed samples, 135 companies (79.9%) reported positive forecasts, with 82 expecting净利润 growth exceeding 100%. By sector, 19 out of 20 non-ferrous metal companies reported positive forecasts, 15 with doubled profits; 22 out of 31 electronics companies were positive, 12 doubling profits; computer and communication sectors had a 100% positive forecast rate. This indicates that high growth is primarily found in resource price increases and the AI hardware chain, with surprises mainly in high-prosperity sectors like non-ferrous metals, electronics, computers, and communications.
Computing power remains the core theme of Q1 prosperity, expanding from core hardware to "computing power+" infrastructure links. InnoLight reported Q1 revenue of 6.674 billion yuan, a year-on-year increase of 37.82%, with net profit attributable to shareholders of 1.583 billion yuan, up 56.83% year-on-year. Hygon reported Q1 revenue of 4.034 billion yuan, surging 68.06% year-on-year, with net profit of 687 million yuan, up 35.82%. Public disclosures also show that domestic computing power chips, PCBs, and other semiconductor supply chain segments continue the high prosperity seen since 2025. As data center capacity and power density rise, areas like liquid cooling, computing power leasing, and power supply within the "computing power+" domain remain key for tracking future prosperity diffusion.
The certainty of high Q1 earnings growth in the lithium battery产业链 is being intensively verified. Industry leader CATL reported Q1 2026 revenue of 129.1 billion yuan, up 52.45% year-on-year, and net profit of 20.7 billion yuan, up 48.52%. Revenue growth has accelerated to its highest level in five quarters, while profits remain high, reflecting accelerating synergy between power and storage demand. Eve Energy forecasted a 25%-35% increase in Q1 net profit, with full production and sales of energy storage cells further confirming robust demand. Notably, mid- and upstream segments previously deep in losses are collectively reaching profitability inflection points. In lithium salts, Tianhua New Energy and Ganfeng Lithium turned significant profits year-on-year in Q1. In cathode materials, Longpan Technology forecasted Q1 net profit of 200-250 million yuan, driven by higher LFP processing fees and inventory gains from lithium carbonate price increases. CNGR Advanced Material projected Q1 net profit growth of 72%-92%, supported by simultaneous recovery in ternary and LFP demand. Profit distribution across the产业链 is evolving from "cell-dominated" towards more balanced recovery among segments, signaling that industry prosperity has transmitted from downstream to mid- and upstream.
On the demand side, energy storage's role as the core engine for lithium battery demand growth continues to strengthen. China's cumulative installed power storage capacity is projected to reach 213.3 GW by 2025, up approximately 55% from 137.9 GW in 2024. Globally, new power storage installations are expected to hit 106 GW in 2025, a 43% year-on-year increase. The explosive growth in energy storage demand for AI computing centers provides a new structural增量. According to GGII data, combined sales of power and storage batteries in China reached 437.1 GWh in Q1 2026, up 52.9% year-on-year, with storage battery sales soaring 111.8%. This high demand-side prosperity fundamentally supports the集中兑现 of strong Q1 earnings across the产业链.
The innovative drug sector's vitality is doubly confirmed by earnings and trading performance, with leading companies significantly exceeding expectations. 2025 annual reports showed that top innovative drug firms普遍超出 market profit expectations. BeiGene reported full-year revenue of 38.2 billion yuan, up 40.5% year-on-year, with operating profit of 2.6 billion yuan, 43.3% above consensus, indicating faster global adoption of core products than previously assumed. WuXi AppTec reported revenue of 45.5 billion yuan, up 15.8%, and operating profit of 23.9 billion yuan, 21.2% above expectations, achieving substantial profit outperformance despite recurring geopolitical tensions. Meanwhile, many companies reported high operating profit growth, and although some lack comparable consensus data, the profit growth rates themselves point to a systematic recovery in sector profitability.
In Q1 2026, the value of domestic innovative drug license-out deals already reached approximately 60 billion yuan, nearly half the total for full-year 2025. Since 2026, multiple blockbuster deals exceeding $1 billion have been completed. The largest transaction was Innovent Biologics' $8.85 billion global collaboration with Lilly in immunology and oncology, with a $350 million upfront payment. RemeGen licensed RC-148 to AbbVie for $5.6 billion; CSPC Pharmaceutical signed a $4.7 billion global commercialization agreement with AstraZeneca. Companies like Chia Tai Tianqing, Zensun, Harbour BioMed, Antengene, and Frontier Biotech also each completed deals exceeding $1 billion. Multinational pharmaceutical firms' competition for Chinese innovative drug pipelines shows no signs of abating, with the frequency and size of large deals at historical highs, laying the groundwork for future milestone revenues and profit recognition.
The global semiconductor industry's prosperity is still accelerating upwards. SIA/WSTS data show global monthly sales climbing from $56.5 billion in early 2025 to $88.8 billion in February 2026, a 57% increase in 14 months. The February year-on-year growth rate of 61.8% widened from January's 46.1%, indicating the industry is accelerating towards a historic annual scale of $1 trillion. China's market follows a similar rhythm, with February 2026 sales of $23.6 billion, up 57.4% year-on-year.
The strength of this upcycle is systematically verified in A-share semiconductor companies' Q1 reports. The memory segment shows the most elasticity, with BIWIN reporting Q1 net profit of 2.9 billion yuan, up 1568% year-on-year, and Longsys forecasting net profit of 3.15-3.65 billion yuan, turning a profit year-on-year, primarily benefiting from sharp increases in DRAM and NAND Flash contract prices. In optical modules, InnoLight reported Q1 net profit of 5.7 billion yuan, up 262% year-on-year, supported by持续扩张 in computing capital expenditure. In chip design, Hygon projected Q1 revenue of 3.9-4.2 billion yuan, up 63%-76% year-on-year, as the market for domestic high-end processors continues to expand. In equipment and materials, Qiangyi reported net profit growth of 655%-762%, and Dinglong reported growth of 70%-84%, as the advancement of domestic substitution带来持续的 orders and profit increments.
Potential risks include: (1) Weaker-than-expected effectiveness of domestic demand support policies. If subsequent data on property sales, investment, etc., fail to recover, inflation remains low, consumption shows no significant boost, corporate profit growth continues to decline, and economic recovery is ultimately disproven, overall market trends could face pressure, requiring correction of overly optimistic pricing expectations. (2) Escalation of Sino-U.S. strategic competition. Risks exist that strategic competition could spread from trade to technology, critical resources, finance, shipping, logistics, military affairs, and other areas, leading to comprehensive strategic conflict. This could disrupt normal economic activity and impact equity markets. (3) Greater-than-expected volatility in the U.S. stock market. If the U.S. economy deteriorates more than expected, or if Fed easing is less aggressive than anticipated, significant U.S. market fluctuations could occur, spilling over to affect domestic market sentiment and risk appetite.
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