Review|1Q25: Our Research Methodology and AI Company Performance - Part 2
IT Spending, MNDY, TENCENT, BABA, SNOW
This earnings season, we published 15 preview reports on AI stocks. In chronological order, based on the accuracy of our earnings predictions versus stock price movements, our track record was: META (✓), MSFT (✓), AWS (✓), PLTR (✓), APP (✓), MNDY (✓), Tencent (✓), AliCloud (✗), SNOW (✓), OKTA (Mixed), C3.AI (✗), CRM (✓), NVDA (✓), MDB (Mixed), RBRK (✓).
Here, ✓ indicates our directional assessment aligned with stock performance, ✗ indicates our prediction contradicted stock performance, and "Mixed" indicates our preview contained highly mixed views that were difficult to judge accurately.
We also completed several in-depth reports including IT Budget 1Q25 survey, China AI - Demand Research, China AI - CSP, China AI - Fintech, Apple Payment Policy Changes, LLM 1Q25 Deep Dive, Robotaxi 1Q25 Deep Dive, and China AI - Robotaxi.
We aim to review the quarter chronologically to help everyone understand earnings trends, how our fundamental research helps interpret AI industry developments, and how our research improves earnings prediction accuracy.
In such complex macroeconomic conditions, 11 of our 15 preview reports correctly aligned with stock price movements, achieving an impressive 73% success rate. Notably, when most observers were pessimistic about the Magic 7 stocks entering earnings season, we predicted from the outset that META and MSFT results would surprise everyone positively, which became the prelude to this quarter's U.S. market reversal.
Deep | Global IT Budgets Under Pressure: Macro Uncertainty, AI Momentum, and the Rise of Digital Sovereignty
Before the SaaS earnings season began, we completed a Global IT Spending report. In this report, we conducted extensive interviews with 10 Partners and Enterprise Customers to understand how macroeconomic and AI are influencing IT spending.
Our research revealed several interesting trends:
European customers are seeking European local IT vendors as alternatives to American suppliers, with particularly strong demand for SAP: "Some 30% of European customers are considering switching to local vendors such as SAP, at least for their European operations"
CRM software, including Salesforce, Microsoft, Hubspot, and Zoho, is most affected by macroeconomic conditions. Seat sales are directly impacted by enterprise customer layoffs, with Sales Seat licenses most closely correlated to macroeconomic conditions
Within workflow software, HCM tools face similar challenges to CRM: "HR and workflow tools like HCM are similarly vulnerable. They're adjacent to CRM in terms of budget cuts."
Among workflow software providers, NOW is least affected due to its cost-saving benefits
ERP software, such as SAP and Oracle, remains almost unaffected
These findings were highly consistent with subsequent performance reports from SAP, CRM, WDAY, NOW, and ORCL.
Deep | MNDY 1Q25: A Very Solid Mid-term Growth Story
Our view: Bullish
Stock performance: Bullish
Through 10 MNDY interviews, we thoroughly analyzed MNDY's evolution from 4Q25 to 1Q25 and examined upsell patterns across different products.
Our research revealed several interesting trends:
MNDY demonstrated strong sales execution in 1Q25, with positive sales completion expectations for both 2Q25 and full-year 2025
MNDY CWM is undergoing product upgrades, with a new EWM product launched and 15-20% price increases implemented
MNDY CRM sales performance is strong, with customers experiencing 10-20% upsell rates. More surprisingly, several Partners told us that approximately 1/3 of MNDY CRM customers had not previously purchased MNDY CWM products
MNDY CRM significantly outperforms Hubspot and Salesforce, particularly in the current macroeconomic environment, with Partners reporting increased migration of Hubspot customers to MNDY CRM
In some Partner sales cases, MNDY Service showed higher upsell rates than MNDY CRM and has consistently exceeded Partner sales expectations since its launch earlier this year
MNDY AI will not generate revenue in 2Q25, with revenue contribution expected to begin in 3Q25
MNDY's performance aligned with our observations, showing robust results while Hubspot and Salesforce both missed their targets.
Preview | Tencent 1Q25: AI Tailwind Starts to Become Visible in Advertising Business
Our view: Bullish
Stock performance: Bullish
In this research report, we further strengthened our confidence in Tencent AI:
We observed AI contributing 2% incremental revenue to Tencent's advertising business, with potential to contribute 5% incremental revenue in the second half of the year. This enabled Tencent's advertising revenue growth to reach 18-20% this quarter
Tencent's gaming performance might slightly exceed market expectations, primarily due to contribution from established titles rather than Delta Force
Tencent's own Agent product is expected to launch in the coming months, not as Tencent Yuanbao but as a more native Agent product
Tencent currently faces no GPU capacity limitations, and CAPEX might be lower than market expectations
Tencent's advertising and gaming performance aligned with our observations, and the company's CAPEX for the quarter was slightly below buyside expectations.
Preview | BABA: Solid AI Demand in China, but Revenue Divergence Persists Among Investors
Our view: Bullish
Stock performance: Bearish
Alibaba Cloud reported 18% YoY revenue growth this quarter, falling at the low end of consensus (US/Europe investors expected ~18%, while China local investors were closer to 23%). Our own estimate of ~20% proved to be optimistic. The miss can be attributed to both demand timing and supply constraints:
Demand side: The ramp in external demand wasn't as fast as anticipated. Although customer AI spending—particularly from internet companies—showed strong momentum in our checks, there's a lag from intent → pilot → scaled deployment. For example, DeepSeek didn't gain viral traction until around Chinese New Year (February), meaning any incremental demand materialized late in the quarter and had limited impact on Q1 revenue.
Supply side: Alibaba responded to surging demand by placing additional orders for Nvidia H20 GPUs. However, major internet platforms reportedly didn't begin receiving shipments until late March. Even after delivery, standard deployment timelines (e.g., 3 months internationally) mean most of this capacity won't meaningfully contribute until Q2 or beyond.
Despite the Q1 miss, we think Alibaba Cloud remains well-positioned to achieve its RMB 142B revenue goal for FY2025 (+20% YoY), given the following:
Structural demand remains intact: The shortfall was largely due to supply bottlenecks and demand timing—not a deterioration in customer intent. Our checks show improving ROI for AI investments and a marginal uptick in customer budgets.
Alternative access to compute: Even if direct procurement is constrained, Alibaba can still secure NV GPU capacity via rental partnerships with ByteDance and other third parties, helping to meet customer needs.
Management commentary supports acceleration: The company has guided for accelerating cloud growth over the coming quarters, supporting our view that a +20% YoY target is still within reach.
Preview | SNOW CY1Q25: Data Engineering and AI Products Are Customers' Top Priorities
Our view: Bullish
Stock performance: Bullish
Our SNOW Preview perspective differed from market consensus in several areas, and we observed some surprising developments:
As Databricks grows in revenue scale and positions as an AI Solution Platform rather than just a Data Infra provider, it's competing more directly with CSPs. This has created a subtle shift in the relationship between the three major CSPs and Databricks, with CSPs allocating more sales resources to Databricks competitor SNOW since late last year
Macro environment isn't impacting SNOW, and since late last year, customers in Europe and North America have experienced AI peer pressure, categorizing products like Snowpark and Cortex under AI Budget rather than just Data Infra Budget
SNOW's relationship with System Integrators has strengthened, with increased reliance on GSIs to integrate SNOW's new products into customer AI use cases
The company may hire fewer employees than expected this year due to AI efficiencies and product focus, creating potential for further OPM improvement
The significantly improving relationship between SNOW and CSPs hasn't been widely discussed yet, and we anticipate more discussion on this topic in the future.