Kingsoft Cloud: Positive AI Revenue Growth Momentum

seekingalpha09-12

Kingsoft Cloud is anticipating a significant increase in its capital investments for 2024 vis-a-vis 2023, and the bulk of the company's capital expenditures for this year will be AI-related.KC has ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nKingsoft Cloud: Positive AI Revenue Growth Momentum\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-12 11:42 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4720586-kingsoft-cloud-stock-positive-ai-revenue-growth-momentum><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Kingsoft Cloud is anticipating a significant increase in its capital investments for 2024 vis-a-vis 2023, and the bulk of the company's capital expenditures for this year will be AI-related.KC has ...</p>\n\n<a href=\"https://seekingalpha.com/article/4720586-kingsoft-cloud-stock-positive-ai-revenue-growth-momentum\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"03888","symbol_name":"金山软件","start_time":0,"source_url":"https://seekingalpha.com/article/4720586-kingsoft-cloud-stock-positive-ai-revenue-growth-momentum","article_id":"2466587210","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1669453534/image_1669453534.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2466587210","pubTimestamp":1726112520,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Kingsoft Cloud is anticipating a significant increase in its capital investments for 2024 vis-a-vis 2023, and the bulk of the company's capital expenditures for this year will be AI-related.KC has bro","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"03888":"金山软件"},"translate_title":"金山云：AI收入增长势头积极","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"03888":1},"content_text":"Kingsoft Cloud is anticipating a significant increase in its capital investments for 2024 vis-a-vis 2023, and the bulk of the company's capital expenditures for this year will be AI-related.KC has broadened its AI client base, and this is likely attributable to the company's independence as it has no links with the Chinese technology giants.I continue to rate Kingsoft Cloud as a Buy, as I think that the company can sustain its positive AI revenue growth momentum for the future.   pingingz Kingsoft Cloud Holdings Limited (NASDAQ:KC) [3896:HK] stock is still awarded a Buy investment rating. KC's AI-related cloud services revenue has more than doubled QoQ in Q2 2024. The broadening of Kingsoft Cloud's AI customer base and the company's favorable capital expenditure outlook indicate that KC's positive AI revenue growth momentum should be sustained. My earlier June 5, 2024 write-up indicated that KC is \"at an inflection point\" considering the potential improvement in the company's financial performance for the current fiscal year. Capital Expenditure Guidance Has Positive Read-Throughs For AI Revenue Growth Outlook KC guided at its recent Q2 2024 analyst call that its 2024 aggregate capital expenditures will be \"a few times\" that of its 2023 capital investments, with \"95%\" or more of the current year capital expenditures associated with AI. The company's full-year capital expenditure guidance indicates that its top-line performance, in particular its AI revenue, will most probably be strong going forward. Kingsoft Cloud only started disclosing its AI revenue numbers in the first quarter of this year. Revenue contributed by KC's AI cloud services grew by +104% QoQ from RMB 160 million in Q1 2024 to RMB 326 million for Q2 2024. The percentage of the company's public cloud services segment revenue contributed by AI-relates cloud services increased from 13% to 26% on a sequential basis in the same time period. AI revenue accounted for a significant 17% of Kingsoft Cloud's Q2 2024 aggregate top line (including public cloud services, enterprise cloud services, and others). Goldman Sachs (GS) projected that KC's AI revenue contribution as a percentage of its top line could rise to 26% and 31% in 2025 and 2026, respectively, as per GS' August 21, 2024 report (not publicly available) titled \"KC Earnings Review.\" The sell side's expectations of rising AI revenue contribution for Kingsoft Cloud are realistic, considering that 95% of the company's 2024 planned capital investments are linked to AI according to its guidance as mentioned above. KC's overall top-line performance is likely to be even better in the future, taking into account the positive AI revenue growth momentum. Kingsoft Cloud suffered from negative top-line growth in both FY 2022 and FY 2023. In my previous June 5, 2024 article, I explained that KC has been engaging in \"top-line mix optimization\" which has resulted in \"the continued decline in revenue derived from the less profitable CDN (Content Delivery Network) business.\" But AI is emerging as a new growth driver for KC. Moving forward, the market is anticipating that KC can achieve positive top-line expansion rates of +6%, +7%, and +11% for FY 2024, FY 2025, and FY 2026, respectively as per S&P Capital IQ. This is aligned with KC's Q2 analyst briefing comments that it will \"have a very good possibility to convert (AI-related capital expenditures) to accelerated revenue growth on the top line.\" A return to positive revenue expansion also enhances KC's operating profitability. Based on consensus data sourced from S&P Capital IQ, Kingsoft Cloud is forecasted to register positive EBITDA margins of 4.2%, 7.3%, and 10.1% in FY 2024, FY 2025, and FY 2026, respectively. Favorable operating leverage effects driven by higher revenue on a fixed operating expense base will be a significant profitability improvement driver for KC. Broadening Of AI Client Base Suggests That KC's Independence Is Valued Highly At the company's second quarter earnings briefing, Kingsoft Cloud emphasized that its \"AI customer base\" has \"diversified\" to include \"large language model companies, self-driving, Internet applications and others.\" The broadening of KC's AI client base indicates that an increasing number of the company's existing and potential customers value its status as an independent cloud services player. My November 28, 2020 initiation piece highlighted that KC \"is well-positioned to grab market share from its larger rivals as a result of its status as an independent player that is not affiliated with any of the internet giants in China.\" According to a March 28, 2024 research article published by technology research firm Canalys, Alibaba (BABA) Cloud, Huawei Cloud, and Tencent (OTCPK:TCEHY) (OTCPK:TCTZF) Cloud were the top three players in Mainland China's cloud services market. As highlighted above, KC's new AI client additions include companies engaged in the \"large language model, self-driving, Internet applications\" business segments. Chinese companies developing their own large language models or LLMs might prefer to utilize Kingsoft Cloud's AI cloud services, rather than use the cloud services offered by Alibaba and Tencent which have their own LLMs. Similarly, Huawei is a player in the self-driving technology space, so its Chinese competitors in this business area are less likely to consider Huawei's cloud service offerings. Kingsoft Cloud was \"ranked among the top five Chinese public cloud service providers\" based on Frost & Sullivan research cited in a 2023 LawdotAsia article. Separately, an October 9, 2023 news report published by Chinese state media Global Times mentioned that \"China aims to increase computing power by more than 50% by 2025\" to \"accelerate innovation in artificial intelligence.\" As per the data highlighted above, demand for AI-related cloud services in the Chinese market will most likely grow going forward, with China making AI a priority. Kingsoft Cloud is one of the key players in China's growing cloud services sector, and KC's independence means that it is an attractive cloud services provider of choice for those engaged in competition with the major Chinese technology companies. Risk Factors KC's growth prospects are heavily influenced by the demand for its AI cloud services. One risk is that Kingsoft Cloud doesn't execute well on its capital investment plans, and the lower-than-expected AI-related capital expenditures might limit KC's future top-line expansion. The other risk is that KC faces stiffer-than-expected competition from the larger technology companies' cloud services businesses or emerging independent cloud services players. Final Thoughts Kingsoft Cloud's favorable financial outlook supported by AI-related tailwinds have yet to be reflected in the stock's current valuations. KC is now trading at appealing consensus FY 2025 Enterprise Value-to-Revenue and EV/EBITDA metrics of 0.30 times and 4.2 times, respectively, according to S&P Capital IQ.  As an AI play, KC certainly deserves to trade at richer valuations than its current Enterprise Value-to-Revenue ratio of less than a third and mid-single digit EV/EBITDA ratio. I am of the view that Kingsoft Cloud will be able to command superior valuation multiples in the future, as the company's AI revenue continues to expand.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2466587210"}