高盛：中国人工智能互联网巨头的路线图；机会集和风险因素 Generative Al in China - A roadmap for internet giants；opportunity set and risk factors

theU.S.

TheGoldmanSachsGroup,Inc.

Fulllistofauthorsinside

EQUITYRESEARCH|16July2023|11:33PMHKT

GenerativeAIinChina

Aroadmapforinternetgiants;

opportunitysetandriskfactors

RegulatoryReview

AITalents

ComputingPower

LLMModel

PersonalAssistant

VirtualHuman

GenerativeAI/theuseofLargeLanguageModels(LLMs)hasbroughta

proliferationofto-public(to-C)conversationalchatbotsandto-Businesscorporate

adoptiongiventhetechnology'sabilitytocreatecontent(text,image,videoand

more)vianaturallanguageprocessing.WiththerapidpaceofLLMlaunchesand

ongoingcapitalinfluxinChina(where90+LLMshavebeenannouncedinChinaalone

year-to-date,only7arebyinternetplatformcompanies),inthisreport,welayout

theroadmapforGenerativeAIinChinawhereweassess(1)theevolvingregulations

withkeyswingfactorsbeingaccessibilityofGPUsandUS/Chinaregulations,(2)the

emergingcompetitivelandscapeforLLMsinChinawhereinternetgiants(Bytedance

(NotCovered),Baidu,Alibaba&Tencent,a.k.a.BBAT)arepositionedwithin,(3)

applicationscenarioswhereto-Bapplicationsarethekeyfocusarea,and(4)

computingpoweristhekeywheretraining/inferencingrestsonfewChinainternet

giantsascloudhyperscalerswithModel-as-a-Service(MaaS)capabilities.We

forecastUS$9bnofGPUcapextobespentbyBBATover23-25EforGenerativeAI

(c.750k)A800-equivalentGPUs,c.25%ofourBAT23-25Etotalcapexandintroduce

ourbase/bull/bearChinacloudTAMrevenueatUS$139bn/166bn/120bnby2027E

byswingingAIcomputingneeds.WeseeAlibaba(onCL,#1publiccloudhyperscaler

withthelargestcloudinfrastructureinChinathatitplanstodistributeinspecie),

Baidu(onCL),andTencentallBuyrated,askeybeneiciarieswithunique

HumanoidRobot

advantagesinthemodellayer(withtheirMaaSofferingsandampleinventoryof

GPUsonhand)andinthecoreinfrastructurelayerascloudhyperscalers.

LincolnKong,CFA

+8522978-6603

TimothyZhao

+8522978-2673

timothy.zhao@GoldmanSachs(Asia)L.L.C.

RonaldKeung,CFA

+8522978-0856

lincoln.kong@GoldmanSachs(Asia)L.L.C.

ronald.keung@

GoldmanSachs(Asia)L.L.C.

DavidMa

WeitingTang

+8523966-4006

AllenChang

+8522978-0822

david.ma@GoldmanSachs(Asia)L.L.C.

+8522978-2930

weiting.tang@GoldmanSachs(Asia)L.L.C.

allen.k.chang@

GoldmanSachs(Asia)L.L.C.

GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto/research/hedge.html.Analystsemployedbynon-USaffiliatesarenotregistered/qualifiedasresearchanalystswithFINRAin

AUTHORS

AllenChang

+8522978-2930

allen.k.chang@

GoldmanSachs(Asia)L.L.C.

SteveQiu

+8522978-2672

steve.qiu@

GoldmanSachs(Asia)L.L.C.

LincolnKong,CFA

+8522978-6603

lincoln.kong@

GoldmanSachs(Asia)L.L.C.

JustinKwok,CFA

+8522978-0481

justin.kwok@

GoldmanSachs(Asia)L.L.C.

TimothyZhao

+8522978-2673

timothy.zhao@

GoldmanSachs(Asia)L.L.C.

WeitingTang

+8523966-4006

weiting.tang@

GoldmanSachs(Asia)L.L.C.

HongdaZhong

+8522978-2300

hongda.zhong@

GoldmanSachs(Asia)L.L.C.

TingSong

+8522978-6466

ting.song@

GoldmanSachs(Asia)L.L.C.

RonaldKeung,CFA

+8522978-0856

ronald.keung@

GoldmanSachs(Asia)L.L.C.

DavidMa

+8522978-0822

david.ma@

GoldmanSachs(Asia)L.L.C.

EuniceLiu

+8522978-7472

eunice.liu@

GoldmanSachs(Asia)L.L.C.

VerenaJeng

+8522978-1681

verena.jeng@

GoldmanSachs(Asia)L.L.C.

TheteamwouldliketothankJoyYuandLeonWang

fromChinaInternetteamfortheircontributions

GoldmanSachs

GenerativeAIinChina

16July20232

TableofContents

Insixcharts3

PMSummary

4

Whatispricedin?

23

TheevolvingregulationsintheUS/ChinaonChinaAI

27

Modellayer:TheemerginglandscapeofLLMsinChina

34

Applicationlayer:Applicationscenarios

42

Infrastructurelayer:Cloudopportunity

60

Companyspotlights

67

DisclosureAppendix

87

GoldmanSachs

GenerativeAIinChina

16July20233

Insixcharts

Exhibit1:Ourthesisin6keycharts

Source:GoldmanSachsGlobalInvestmentResearch

16July20234

PMSummary

Exhibit2:ChinaGenerativeAIRoadmap

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

GoldmanSachs

GenerativeAIinChina

16July20235

WhileArtificialIntelligenceisnotanewtopic(GSdeepdivesonAIhavedatedbackto

2017

and

2016

),GenerativeAI/theuseofLargeLanguageModels(LLMs)hasbroughtaproliferationofto-public(to-C)conversationalchatbotsand

to-BusinesscorporateadoptionsincethelaunchofOpenAI’sChatGPTgiventhetechnology’sabilitytocreatecontent(text,image,videoandmore)via.naturallanguageprocessingandiscreatingpotentialgrowthareas(e.g.,cloud,personalassistant,incrementinproductivity,contentcreation,costoptimizations).InChina,suchopportunitiesfacepotentialrisksacrossaccessibilityofGPUs/chipsban/sanctionrisks,Chinaregulations/potentiallabormarketimplications,contentguardrailsandtrafficdisruptionifnewto-Ctrafficsources/superappsemerge.

WiththerapidpaceofLLMlaunchesandongoingcapitalinfluxinChina(where90+LLMshavebeenannouncedinChinaaloneyear-to-date,amongstwhichonly7werebyinternetplatformcompanies,otherswerefromthetech/start-up/academiacamps),inthisreport,weassesstheevolvingregulationsthatcouldimpactChineseplayers,theemergingcompetitivelandscapeofLLMsinChinaandhowChinainternetgiantsBBATarepositionedwithinthemodel,applicationandinfrastructurelayers.WeseeChinainternetgiantsunderourcoverageaskeycloudhyperscalersbeneficiaries,beingwellpositionedforModel-as-a-Service(MaaS)model/applicationopportunities,withuniqueto-CtrafficadvantageswithdeploymentofLLMsintotheirkeyecosystems(WeChat,Taobao,Douyin,Baidusearchetc.).Weaddressthekeyinvestorfocusareasacross:

(1)EvolvingregulationswhereakeydifferencebetweentheUSandChineseplayersisthatChina’sLLMapprovalprocess(bytheCyberSecurityAdministration)isonamodel-by-modelbasisthatwillleadtohighentrybarriersforpublic-useTo-Cscenarios(e.g.,Chatbots),whileto-Bscenarios(e.g.,corporateproductivitytools)couldfacelessregulatoryscrutiny.Meanwhile,keybottlenecks/riskssurroundavailabilityofGPUsandanypotentialfurtherinvestment/sanction/chipbansfromtheUS,includinginvestorconcernsonrestrictionstoChinesefirmsusingUScloudplatformstotrainAImodelandanysanctionrisksrelatingtoChinacloudcomputingbusinessesand/theirparententities.RegulationsoncontentcopyrightaroundtheworldandcontentguardrailswithinChinaarealsostillevolving.

(2)Modellayer:Approachesconvergingwithininternetplayersbuildingopeneco-systems;weexpectgenericmodelstobedominatedbyahandfulofmoresuccessfulplayers,vs.industry/verticalmodelswithalargenumber

ofplayers:Weexpectgenericall-purposeLLMstoeventuallybedominatedbyahandfulofplayersinChina(withthecapitalandtechnicalscale)asmajortrafficentrypoints,alongsidenumerousenterprise-/industryspecificLLMplayers.Thetimingofapprovaloffirstto-CLLMs/applicationsisstilluncertain,thoughontherighttrackastheGenerativeAIlawhasbeenofficiallyenactedonJuly13,2023(

link

),3monthsaftertheearlierdraftversioninApr,ChinabeingoneofthefirstcountriesaroundtheworldtohaveformaltransparentregulatoryframeworkenactedforGenerativeAIinnovation.Meanwhile,industry-specific/enterpriseusemodelshavebeentakingtheleadinlaunchesoverrecentmonths.Internetgiantsarealsoincreasinglyopentopartnershipsinthemodelandapplicationlayer(cooperatingwithbothopen/closed-sourcedindustrymodelplayers),ontopofowngenericLLMasabase.

16July20239

(3)Applicationlayer:To-Ctraffic/monetizationmethodsnotyetfullyproven;whileTo-Bapplicationshaveclearermonetizationpathandpotentialsacrossallsectors(e.g.,games/content,workproductivitywithindustryspecificLLMsusedwithincorporatesetting,KingsoftOfficecoveredbyAllenChang(recent

upgradetoBuy

),andacombinationofnaturallanguageprocessingwithroboticsetc.)vs.to-Cscenarios(personalassistant,search)whichrequiresmoreextensiveregulatoryapprovalswithbusinessmodelthatneedstoevolvebeyondtheQ&Aformatinorderforwiderpublicadoption,evidentfromChatGPT’srecentsequentialmonth-on-monthslowdowningrowthintherestofworld.WebelievewithChinainternetgiants’trackrecord/successincreatingall-purposesuperapps(e.g.WeChat,Douyin),thefirstamongst

globalpeers,couldhelpdrivemoreconcreteto-CapplicationpersonalizedscenariosbeyondQ&Achatbot,wherepersonalassistant/companionavatarorhumanoidrobots/IoT-enabled/InstantMessaging-connected/API-connectedapps/co-pilotfunctionalitiescouldbepotentialgamechangers,subjecttoregulatoryapprovals.

(4)Infrastructurelayer:GPUiskeywheretraining/inferencingrestsonfewChinainternetgiantsascloudhyperscalerswithModel-as-a-Service(MaaS)capabilities.WepresentourIaaS+PaaS/MaaScloudbase/bull/bearscenarios,whereBBAT’svastinventoryofGPUsandgeneral/AIserversfortheirexistingbusinessespositionthemwellwithmarginaccretiveMaaSrevenues,despitehighercomputingcosts(relativetoexisting)andhigherGPUcapex/AIserverequipmentrace.Ascloudhyperscalers,weseegenerativeAIcreatinganopportunityforChinainternetcloudoperatorstoimprovetheircloudmarketpositioning,leveragingtheproliferationofdata/GPUprocessingneeds(weestimatecloudmarketgrowthof20%/25%/17%inourbase/bull/bearcases)via.moredifferentiatedofferingsinChina’scompetitiveIaaS

(Infrastructure-as-a-Service,incomparisonwithstate-ownedtelcos)andexpansionintoPaaS/SaaS/MaaS(Model-as-a-Service).

Alibaba(onCL),Baidu(onCL),andTencentallBuyrated,arethekeyLLMbeneficiariesinourviewwithuniqueadvantagesinthemodelandinfrastructurelayerswiththeirMaaSofferingsandascloudhyperscaler(AlibabaCloudhas#1positioninIaaScloudrevenuescaleinChina,followedbyTencentCloud(60%ofAlibabaCloud)andBaiduCloud(25%ofAlibabaCloud)basedonCY2022revenue.AlibabaremainsourtoppickgivenitisoneofthebestpositionedcompaniesinChinatocapturetheincreasingcomputinganddataprocessingneedsfromthedevelopmentofgenerativeAI,drivenbyitsscaleadvantageandaccumulatedcomputingpower.ForAlibaba’scoreeCommercebusiness,weseepotentialthatgenerativeAIcanlowerthecostofmerchantonboardingandmarketing,whileenablingamorepersonalizedonlinepurchasingexperiencethroughconversationalsearches.WealsoseeBaiduasakeyAIbeneficiarygivenitsmulti-yearinvestmentsasanAIleaderinChina(firstcompanytosoftlaunchitsto-CchatbotinChina)andTencentbeingoneofthebestpositionedtoleverageLLMtoempoweritsWeChatecosystemwithwideapplicationscenarios.

ObservationsandOutlook

Weexpectall-purposeultra-largeparametersLLMsmayultimatelybedominatedbyahandfulofcompaniesin

16July20237

Chinaasmajortrafficentrypoints,butregulatoryapprovalscouldtaketime.Webelieveinternetgiantsarewellpositionedinall-purposeLLMsbyintegratingsuchchatbot/personalassistantintotheirecosystemswherea

more-personalizedpersonalassistant,companionavatarorhumanoidswithfullChatbotfunctionalitiese.g.therecentAmecahumanoidcombinedwithChatGPT3/4functions(seealso,recent

WorldArtificialIntelligenceConference

takeawaysonhumanoids,

byJacquelineDu),IoT-enabled,InstantMessaging-connected,API-connectedapps,co-pilotfunctionalitiescouldbepotentialgamechangers,subjecttoregulatoryapprovals.

Weseenumerousmid/smaller-sizedvertical/industryspecificLLMs,someoperatingontopofgeneric

all-purposeLLMsasabase,servingto-Bspecificapplicationsatlargeandsmallenterprisesacrossfinancialinstitutions,healthcare,retailandmore,similartotoday’sPaaS/SaaSmarket,withkeyinvestordebatesonthecompetitivelandscape(e.g.,willLLMsleadtoariseinAIfirstvertical-specificcompanies,mimickingtheshiftfromPCtomobilecomputing,leadingtoanewclassofcompaniesthatcouldthriveintheGenerativeAIera).Regulationsarerelativelymoreflexibleforto-Bapplicationsgivenenclosedusagescenarioswithincorporates,andweareseeingarisingtrendofcombiningmultiplemodelsinto-Bapplicationswheregenericall-purposeLLMservesasabasemodel,addedwithindustry-specificLLMtotackleindustry-specificquestions/scenarios.

Juryisstilloutforclosedvs.opensourceLLMs,butclosed-sourcedhaveahead-startinChina’sto-C

model-by-modelLLMapprovalprocesswhereoutofthe90+LLMsannouncedbyChineseplayersyear-to-date,60+havebeenclosedsource(includingERNIE,TongyiQianwen)and20+havebeenopensourced(mostofwhicharefrominstitutions/startupsoralreadybasedonotheropen-sourcemodels).IntheU.S.,weobserveOpenAIhasnotmademodelsopensourcesinceGPT-3.0,yethasenabledAPIaccesstoitsmorepowerfulGPT-4.0untilveryrecently.Weexpectbothtoco-existinChinawithclosedsourceinitiallytakingtheleaddrivenbyChinainternetgiants’earlymoveradvantage(underourcoverage)inLLM,benefitedbyearliermodelsubmissionsforgovernment(CACapprovals)andmoredataaccumulationandmodeliteration.Webelievedevelopingmodelsbasedonopen-sourceonescomewithbothopportunities(afasterandmoreaffordableoptioncomparedtobuildingfromscratch)andrisks(nolongeropen-source,moreregulatoryoversightifbasedonoverseasopen-sourcemodels,difficultiesinmonetization/businessusage).

ComputingpowerlikelytherelativebottleneckinChinaamongstthe3keyfundamentalsforAI“computingpower,algorithm,anddata”,althoughcreatinganopportunityforinternetcloudoperatorstoimprovetheircloudmarketpositioning.Chinainternetgiantsarehyperscalersincloudwithsufficientprocessingcapabilities,whereinternetgiants’cloudoperationshavescaleadvantagesandsufficientinventoryofchips/GPUsbuiltupovertheyearsatAlibabaCloud,TencentCloud,BaiduCloudgivenaccessibilitytosuchhardwareinrecentyears,whichhasnotgenerallybeenthecaseforstate-ownedtelcos/Chinatechplayers.AswingfactorforAI/MaaScomputinggrowthforcloudhyperscalersalsohingesonthemixbetweenself-built/self-runAIserversforindividualmodels(whilewenoteplayerslike360SecurityhavebeenprocuringitsAIservers,yetGPUcouldbealimitingconstraintinChinathatfavorsChinacloudhyperscalerswithGPUinventoryadvantages,incontrasttotheUSwherestart-upslikeInflectionAIhasstartedto

16July20238

self-buildaclusterof22kH100sin-house).OurNvidiaanalyst,ToshiyaHariestimatesChinaHyperscalersbase/bull/bearcasefoundationmodeltrainingTAMofUS$13.7bn/US$52.1bn/US$1.1bnandfurthergrowthdriversfrominferencinginthefuture(

link

).

DifferencesbetweentheevolvementinUSandChinaLLMlandscape:WebelievethebiggestdifferenceistheenclosingofcertaindatawithinChinainternetgiants’ownecosystem(e.g.withinWeChat)thatisnotwidelyavailable.RegulatoryapprovalofeachLLMinChinamayalsobenefitinternetgiants’ownself-developedLLM,whereinternetgiantshaveearlymoveradvantage(withearliersubmission),data-setinput(proprietarycontent/datawithininternetgiants’ownecosystemsthatarenotavailableontheworldwideweb)andalreadyestablishedto-Ctrafficentrypoints.

KeyrisksincludeUS/ChinaregulationstowardsGenerativeAI,geopoliticsandimplicationsforGPUavailability/USinvestmentsintotheChinaAIfield,andover-buildinginthelatestcapex/equipmentrace.

Alsopublishedtoday:

NavigatingChinaInternet:Cloudindustrydeep-dive;GenerativeAIagrowthre-acceleratorforinternetgiants

BInc.(BIDU):PivotingtowardsGenerativeAItheme;Sizingtheopportunityandcosts;Buy,addtoCL

AIGC:Part5:UsecaseandMonetizationupdates;ToBAIsoftwaresuppliersasearlybeneficiaries

Seealsoonthebookshelfviews/lessonsfromUS/restofworldthusfarwithGenerativeAI:

TopofMind:GenerativeAI:hype,ortrulytransformative?(

link

),AllisonNathanet.al,July2023

GenerativeAI:Layingouttheframework(

link

),KashRangan,EricSheridanet.al,March2023

GenerativeAI-PartIII:FramingtheGenerativeAIopportunityforNvidia;ReiterateBuy(

link

),ToshiyaHari,July2023

AmericasBusiness&InformationServices:EvaluatingtheimpactofgenerativeAIacrossBusiness&InfoServices(

link

),

GeorgeK.Tong,June2023

KeyinvestordebatesonGenerativeAIimplicationsforUSsearch/consumerinternet(

link

),EricSheridan,June2023

GCTech:AIvs.generalservers:debatesonprofitabilityandsupplychainbeneficiaries(

link

),AllenChang,June2023

TheauthorswouldliketothankJoyYuandLeonWangfromourInternetteamfortheircontributiontothisnote.

GoldmanSachs

GenerativeAIinChina

16July20239

Exhibit3:Glossary

Source:GoldmanSachsGlobalInvestmentResearch

16July202310

Exhibit4:WitharapidpaceofLLMlaunchesandongoingcapitalinfluxinChina(where90+LLMshavebeenannouncedinChinaaloneyear-to-date,amongstwhichonly7werebyinternetplatformcompanies,withothersfromthetech/start-up/academiacamps

Source:Companydata,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

16July202311

Exhibit5:Weexpectto-Call-purposeLLMstoeventuallybedominatedbyahandfulofplayersinChina(withthecapitalandtechnicalscale)asmajortrafficentrypoints,alongsidenumerousto-Benterprise-/industryspecificLLMplayers

Source:Companydata,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

GenericmodelslaunchedClosedSourceOpenSourceInstitutionInternet

Startup

Tech

Vertical

Unisound

Kunlun

360

360Zhinao4.0

ShanHai

TianGong3.5

JD

JDLLM

Langboat

Baichuan

Intelligent

Machine

MengZiMchat

CloudWalk

CongRong

Shenzhen

University

KEHoldings

BELLE

Huawei

Baichuan--7B

ShanghaiAILab,

SenseTimeandseveral

universities

Linly-Chinese

-LLaMA

Alibaba

TongyiQianwen

PanGu3.0

MediaTek

BLOOM-zh

InternLM

Xiao-I

HuaCang

hen

ShenzhenUniversity

National

Supercomputing

CenterinTianjin

CUHK&Shenzhen

ResearchInstitute

ofBigData

Chimera

Baidu

ERNIE-bot

Falcon-7B

Tianhe

Tianyuan

WuhanUniversity

BAAI

WuDao3.0

CheeseChat

InstitueofAutomation,

ChinaAcademy

ofSciences

iDeepWise

(WudaoAquila

ZidongTaichu2.0

Dongni.aiV3

series)

CUHK&Shenzhen

ResearchInstitute

Minimax

Zhihu&ModelBest

QingboBigData

XianWen

SuperSymmetry&FudanUniversity

ZhipuAI&

Tsinghua

University

BBT2

ofBigData

Pheonix

360

360GPT

ModelBest

CPM-Bee

ZhihaituAI

ChatGLM-6B

Xinghuo

iFlyteh

SenseTime

4Paradigm

SenseNova

iFlyteh&&

HKUST

Chinese-LLaMA-Alpaca

APUS

AiLMe

SageGPT

NortheasternUniversity

IDEA

Ziya-LLaMA-13B-v1

TechGPT

Mobvoi

Tigerobo

TigerBot

SequenceMonkey

China

Telecom

Datagrand

CaoZhi

Fudan

University

Telechat

Moss

ClosedSource

OpenSource

Institution

Internet

Startup

Tech

Vertical

Thundersoft

Rubik

AInnovation

AInnoGC

DeepScience

GenSense

China

Mobile

JiuTian

hunde

JiuTian

Silicon

Intelligence

ProteinModel

ProteinModel

ZKTeco

BioCV

LLM

Silicon

Intelligence

Yandi

ChinaTelecom

XingHe

Meiya

Pico

Yandi

Wanguo

Fud