Longs
- Xiaomi (1810.HK/XIACY) - We're moving Xiaomi to the #1 position on our Best Idea Long (replacing Meituan 3690.HK/MPNGY) list, as we enter 2025. Xiaomi is up 95% since we went Long in April. Its two-pronged growth thesis in both global smartphones and electric vehicles in China is rock solid. While smartphone margins have been hampered by higher component costs, the higher ASP of Xiaomi's new Mi15 model (and faster sales) will bolster gross margins, all else equal. The Mi15 Ultra version is coming in February 2025 (ahead of MWC 2025) - social media is already excited about its camera module and satellite connectivity. According to our activation market share data, Xiaomi was #1 in November in China (Huawei was #2, followed by AAPL). Xiaomi's biggest breakthrough has been in the mid-tier smartphones (3k-5k RMB), with market share doubling. Xiaomi is #2 in global smartphone shipments in the world. On the EV side, Xiaomi's SU7 is only behind Tesla's Model 3 in terms of sales of electric sedans in China. The wait times for their SU7 model continue to extend (longest is 6 months) and backlog (>100k) is strong. The focus is now on increasing the production schedule. We expect strong momentum will continue to grow with the SU7 Ultra and YU7 (pure electric SUV model) in mid-2025, given exceptional online marketing and branding. Based on a competitive market analysis of SUVs versus sedans in China, the market opportunity is much larger. As for expanding overseas, XIACY is already hiring for multiple positions - we think Xiaomi-branded cars will arrive in Europe before 2030. Xiaomi has even successfully penetrated China's appliances industry with home appliances and refrigerators; they outperformed the market in those categories by ~40% and ~10%, respectively, based on our analysis. With peers like Tesla and AAPL hitting trillion dollars in market cap, why not Xiaomi (currently at $100bn) someday?
- Nvidia (NVDA) - We will be at CES, in Vegas, for Jensen's keynote speech on Jan 6 and analyst Q&A on Jan 7. Jensen may chat about Blackwell projections and the upcoming CPU project. We think he will defer Rubin's potential until the GTC conference in March. Jensen will reiterate no supply chain disruptions to Blackwell, despite constant rumors on heating and design issues. NVDA's stock generally performs well at the beginning of the year- January was the 2nd best performing month for them this year and 3rd best performing month in 2023.
- Tencent (TCEHY) - Tencent's game domination continues: Tencent has 3 of the top 10 global grossing mobile games in the world & 5 out of the top 10 grossing mobile games in China. Their latest game, which debuted on December 20th, titled "One Piece: Ambition," is a success (#1 in free rankings and #6 on gross rankings). Industry-wide minigame revenues soared 99% (off of a comp of 300% growth) in 2024, which supports their social networks revenues via a platform fee. It experienced a major acceleration in 2H 2024. Separately, it's always a good thing when Tencent is experimenting more with monetization, given its conservative stance with WeChat - a key point in our meeting in Shenzhen (contact us if you want our meeting notes). Their latest experiment is a gifting function within WeChat mini-shops. The concept is similar to red envelope gifting but with products (priced below 10k RMB). The receiver must accept the gift and provide a postal address within 24 hours for the gift to be sent; otherwise, the order will be canceled and refunded to the sender. WeChat users can send only one gift to a single friend per order. It's an interesting concept - we believe this could boost WeChat's GMV during the holidays in China.
Shorts
- Applied Materials (AMAT) - The Biden administration is racing against the clock to dole out the various funds promised via the CHIPS Act. However, it's possible when Trump rolls into office on January 20th, many of the subsidies to foreigners (e.g. Samsung, TSM, SK Hynix) could be negatively modified. In addition, we're waiting to see if the current export control rules (unveiled this month) will get stricter with Trump's administration. Either way, multiple hurdles remain for semi caps - our favorite Short is market share loser, Applied Materials (AMAT).
- Impinj (PI) - This is a tariff loser with no large catalysts from its two biggest indirect customers, Wal-Mart and UPS, in 2025.
- Vertiv (VRT) - Last month, our supply chain sources told us that NVDA may be pushing more for BBUs (Battery Backup Units) and supercapacitors, as part of Blackwell Ultra aka GB 300. This is because of higher power consumption requirements (1.4kw for GB 300 vs 1.2kw for GB 200). This could be a negative catalyst for VRT heading into 2025. Vertiv is known more for UPS (Uninterruptible Power Supply), and UPS is known as a first line of defense on power failure, while BBUs are construed as an extra layer of power protection for critical data and hardware. Thus, UPS and BBU usually co-exist within the datacenter. However, BBU has certain advantages over UPS, such as cost and smaller design (detailed below). As a result, it is possible that instead of a centralized UPS, some data centers could integrate BBUs directly into servers or racks. A hybrid model with BBUs and UPS is likely the best solution, as BBUs can't really support non-server infrastructure. Our key point is that if BBU popularity soars, Vertiv's appeal as a power vendor lessens. While VRT is a power shelf vendor who does integrate BBUs' lithium-ion batteries into their power solutions, it's not their specialty. Some Taiwanese power vendors e.g. Delta Electronics, have a better reputation regarding to BBU integration.
