"Science and technology are the primary productive forces," looking back at the history of human development, the achievements of the past century have been particularly remarkable, and behind this lies the exponential leap in technological innovation, leading to a global burst in productivity. The potential commercial value brought by technological innovation is always exciting, but at the same time, innovation means an increase in the uncertainty of failure, which brings corresponding risks to investment. How to judge the current stage of global technological innovation? How to effectively seize the opportunities brought by technological innovation? How to balance the opportunities and risks in the investment of the technology industry? The author will discuss their humble opinions through this article for readers' reference.

I. How to view the current cycle phase of the global technology industry? We believe that the world is accelerating into the "TECH BIG BANG" era of technological explosion.

The 21st century can be called the golden age of technological innovation. In just over 20 years, we have experienced two grand technological revolutions. The first technological revolution was the "Internet Revolution." Although the first electronic computer "ENIAC" was born in 1946 at the University of Pennsylvania, it was not until the late 90s that the internet began to enter thousands of households on a large scale. This was thanks to the low-cost popularization of fiber optic networks, the progress of computer chip technology, and the optimization of computer software operating systems. The most representative product was the PC personal computer, which gave birth to many technology giants, the most typical being the WINTEL alliance. The second technological revolution was the "Mobile Internet Revolution," marked by the first-generation iPhone smartphone that emerged in 2007. The emergence of smartphones quickly digitized and informatized everyone's work and life, creating huge social value and creating many new technology giants.

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Currently, we believe that the world is welcoming the arrival of the third technological revolution of the 21st century—the "Artificial Intelligence Revolution." It is not limited to the well-known large language models. The popular ChartGPT in the past two years may just be a product manifestation in this wave of technological revolution, and more technological innovations are coming. Whether it is the upstream chip hardware, algorithm models, downstream vertical applications, or early-stage frontier technologies (such as quantum computing, brain-computer interfaces, etc.), they are all closely related to artificial intelligence, and the world is accelerating into the "TECH BIG BANG" era of technological explosion.

Firstly, in terms of chip hardware, wafer foundry giants are leading the digital chip process technology to continuously surpass "Moore's Law." According to the forward-looking technology roadmap, it is expected that by 2030, the semiconductor process will achieve a 0.7nm node through the adoption of CFET process (Complementary Field-Effect Transistor), which is four generations ahead of the current most advanced 3nm node; the Dutch photolithography machine giant officially released the latest generation of high-NA EUV (Extreme Ultraviolet Lithography) machine in December 2023, meeting the chip manufacturing needs after 2nm; the GPU computing power chip giant released the GPU iteration roadmap for the next three years at the Computex conference in June 2024, which will support million-card computing power clusters and high-speed communication interconnection.

Secondly, in terms of algorithm models, large model technology is gradually diverging into two paths that are advancing side by side. One is represented by Silicon Valley startups such as OpenAI, Anthropic, X.AI, etc., constantly pursuing larger parameters and higher intelligence in ultra-large models, conforming to the scaling law scale rule for technical iteration; the other is represented by North American cloud computing CSP giants, focusing on cost-effective models for low-cost application inference, with small parameters, and focusing on exploring how to efficiently implement AI large models on the application side.

Finally, in terms of vertical applications, autonomous driving technology has been researched and developed for many years, but it has not been able to effectively break through level L4 and above. Leading companies are using LLM large models, end-to-end methods, and large-scale computing power to solve the last piece of the puzzle in autonomous driving technology; in terms of embodied intelligence, how to train an AI with general control capabilities is the challenge for the landing of general humanoid robots. After the AI technology breakthrough in 2023, related patent papers and product innovations have emerged like a spring breeze; the first-generation Apple Vision Pro (mixed reality) product released in June 2023 seems not very successful, and starting in 2024, more and more technology companies are developing new generations of virtual/augmented/mixed reality products based on new AI technology.

II. How to grasp the investment opportunities in China in the new round of technological revolution? We agree that based on a medium and long-term perspective, we should layout the two major investment themes of "technological innovation" and "independent and controllable."

First, layout the two major investment themes of China's technology industry, "technological innovation." In the wave of the third technological revolution of the 21st century, we believe that Chinese technology companies will have greater investment opportunities than in the first two rounds of technological revolutions. Whether it is the underlying chips, equipment, basic software, and other links, or downstream applications such as autonomous driving, embodied intelligence, mixed reality, or upstream supply chain links supporting global technology leaders, many effective investment opportunities can be found and seized.

China currently has the most complete technology industry supply chain system in the world. Over the past 40 years of reform and opening up, China's technology industry has undergone earth-shaking changes, especially in the past decade, Chinese technology companies have played an important role globally, and some fields can be said to be leading the trend. In the "Internet Revolution" era, Chinese technology companies started with learning overseas technology and gradually participated in the global technology supply chain on a small scale, with follow-up innovation being the mainstream. In the "Mobile Internet Revolution," the status of Chinese companies in the global technology industry has risen rapidly, especially in the core smartphone industry, where there are both globally renowned smartphone brands and a large number of star enterprises in the upstream components, participating in the supply chain of the world's top technology companies and playing important roles.China currently possesses an enviable surplus of engineers and consumer markets that the whole world admires. Approximately 11 million university graduates enter the workforce each year in China, with a significant portion majoring in science and engineering. A vast pool of excellent engineers is the foundation for the development of technological innovation. From Shanghai Zhangjiang to Beijing Zhongguancun, and then to Shenzhen Nanshan District, technology companies have become gathering places for outstanding young talents. The vast domestic market is a strong first-mover advantage for China's development of technological innovation. China is currently the world's largest market for the sale of smartphones, laptops, passenger cars, and basic communication networks. The huge consumer base of technology provides fertile ground for the incubation of scientific and technological innovation.

Secondly, the two major investment themes in China's technology industry are "self-reliance and control." Before 2015, Chinese technology companies were more concentrated in the low-end manufacturing and assembly links, lacking irreplaceable importance. After nearly 10 years of development during the 13th and 14th Five-Year Plans, significant progress has been made in high-end manufacturing and core underlying technologies. However, objectively speaking, there is still a gap in some key areas compared to the world's top level. The global technology industry has developed over the years to form a highly globalized ecosystem. However, the complex industrial chain and unpredictable international political situation make the self-reliance and control of core technologies particularly important for national economic security. From an investment perspective, focusing on key bottleneck areas (such as integrated circuits, industrial mother machines, basic software, advanced materials, scientific research instruments, etc.), once technological breakthroughs are achieved, there is potential for a leap in commercial value, bringing effective investment opportunities.

Third, how to balance opportunities and risks in technology investment? We insist on solid industry research, grasping the rhythm of the innovation cycle, looking for genuinely growing good companies, and carefully evaluating valuation and risk compensation.

Technology investment has a high degree of uncertainty, and the investment risk is higher than in traditional industries. Due to the instability of innovation, the variability of technological routes, and the unclear competitive landscape, there is a high degree of uncertainty in technological innovation. Therefore, technology investment has always been characterized by high risk and high returns. For example, from 1995 to 2001, in the early stages of the "Internet Revolution," technology stocks in the U.S. stock market experienced significant increases and rapid retractions, later referred to as the "Internet Bubble," reflecting the huge bubble risk brought by investment if it is too far ahead of the industrial cycle in the early stages of the rise of the technological revolution.

So, how to balance the opportunities and risks in technology investment? We believe four points are crucial:

First, based on solid industry research, be the toughest mind in the industry. Elon Musk's advocacy of the first principle is also very suitable for the field of technology investment, emphasizing starting from the most basic principles and deriving the essence and laws of things through logical reasoning. The essence of technology investment is to judge the success of industrial innovation. Only by deeply understanding the actual progress of the industry, the breakthrough points of innovation, and potential risk points, can we deduce the laws of innovation through logical reasoning, thereby increasing the accuracy of investment. This requires a large amount of industry chain research and cross-validation to support it, which is not something an industry expert can do.

Second, grasp the rhythm of the innovation cycle. The development process of technological innovation rarely goes smoothly, and judging the rhythm of the cycle is crucial. Participating too early will experience significant retractions, and participating too late will miss the high return stage. Referring to Gartner's summary of the innovation cycle theory, technological innovation can be divided into five stages: the technology germination period, the expectation expansion period, the bubble bottom period, the climbing bright period, and the production stability period. For technology investment, grasping the expectation expansion period and the climbing bright period is the best investment strategy. The former pursues the rise of PE valuation, and the latter pursues the double hit of EPS performance and PE valuation.

Third, find genuinely growing good companies. The easiest mistake to make in technology investment is to regard "pseudo growth" as "genuine growth" and "stage cyclical growth" as "perpetual growth." To achieve this, more bottom-up in-depth fundamental research on companies is needed, with detailed analysis of their company quality, management team execution, moats, and competitive advantages and disadvantages.

Fourth, carefully evaluate the rationality of valuation and long-term risk compensation. In response to the high uncertainty of technology investment, the rationality of valuation is crucial, and a high level of long-term risk compensation is needed to reduce the risk of innovation failure. Risk compensation mainly comes from the long-term space of the industry, the clarity of the competitive landscape, the long-term market value space of the company, the elasticity and certainty of profitability, etc.

In summary, at the just-concluded third plenary session of the 20th Central Committee of the Party, the importance of developing new quality productive forces was once again emphasized, proposing "to adhere to the forefront of world science and technology, optimize the organizational mechanism of major scientific and technological innovation, and coordinate and strengthen the attack on key core technologies" and "to improve the system for enhancing the resilience and safety level of industrial chains and supply chains, and to urgently create a self-reliant and controllable industrial chain and supply chain." Therefore, facing the opportunities of the "Artificial Intelligence Revolution," the third technological revolution of the 21st century, we believe that we should be based on a medium and long-term perspective, layout the two major investment themes of "technological innovation" and "self-reliance and control," balance the opportunities and risks in technology industry investment, seize the opportunities of the era of technological innovation, and be the toughest mind in industry research.