domestic X86 CPU leader, domestic AI chip first echelon: haiguang information obtained AMD X86 architecture technology authorization in 2016, and on this basis realized independent iteration, and launched self-developed CPU and DCU products. From 2018 to 2022, Haiguang's revenue increased 106 times, with revenue of $5.125 billion in 2022 and net profit of $0.804 billion. As the scale effect increases, the company's profitability will continue to improve. The company's product performance is the domestic leader, is one of the few domestic CPU and DCU companies that open the letter and commercial market at the same time. The company also won the financial, telecommunications and other industries trust customers and commercial markets of Internet customers recognized, 2021 Internet sector revenue of 0.2 billion yuan, revenue accounted for 11%.

industry trust to open up the domestic CPU market space, the company's performance ecological leadership: X86 server chips, according to IDC data, X86 servers in 2020 accounted for 97% of the total server shipments, ecological advantages are obvious. In 2020, China's X86 server chip shipments will reach 6.98 million pieces, and Haoguang CPU product sales will account for about 3.75 percent. We expect that in 2027, the party and government and the central state-owned enterprise industry is expected to achieve full localization. In 2022, China's server shipments will be about 4.48 million units, of which 52/2.06 million units will be shipped by the government and industry. In terms of ecology, Haiguang CPU is compatible with the most mainstream X86 architecture in the current market. Most domestic industry organizations originally adopted X86 architecture products, and the use of Haiguang products can achieve seamless switching of upper-layer applications with less migration risk.

technology, haiguang has achieved the digestion of AMD authorized technology, has been independent iteration to haiguang four, performance close to the international mainstream products.

AI technology changes and overseas sanctions have brought opportunities to the company's DCU business: on the demand side, major AI global manufacturers such as Meta and openAI continue to increase their investment in AI chips. On the production side, TSMC expects AI chip shipments to grow by more than 50% in the next few years. The U.S. Department of Commerce announced on October 17 that it plans to restrict the sale of A800 and H800 to China, and there is an urgent need for localization. Haiguang is the first echelon of domestic AI chips and is expected to fully benefit from the accelerated localization of AI chips. On the ecological side, Haiguang DCU is based on the GPGPU architecture and is compatible with a general-purpose "CUDA-like" environment.

in terms of performance, the FP64 performance of Haiguang DCU deep calculation 1 product can reach the A100 launched by Avida in 2020 and MI100 launched by AMD in 2020. the performance of the second generation product is improved by 100, and the third generation product is expected to be launched in 2024. In terms of commercial applications, the company's DCU products have been certified by Internet companies such as Baidu and Ali, and have launched joint solutions.

earnings forecast and investment rating: the company has CPU and DCU two leading products. CPU, the industry's follow-up progress will continue to accelerate, the company CPU based on X86, is the main force of the industry's trust server replacement. In terms of DCU, the outbreak of AI computing power demand superimposed on the trend of localization accelerated, domestic AI chip manufacturers ushered in a historic opportunity. The company's DCU product performance ecology ranks first. Based on this, we expect the net profit for 2023-2025 to be RMB12.44/17.49/2.379 billion, respectively. First coverage, give a "buy" rating.

Risk Warning: Policy support is less than expected; technology research and development is less than expected; AI development is less than expected.