Kingsoft Cloud Holdings Limited

Good day and thank you for standing by. Welcome to the Kingsoft Cloud second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, Please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. KingsoftCloud's second quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyun.com, as well as PR Newswire's delivery. On the call today from KingsoftCloud, we have our Vice Chairman and CEO, Mr. Zhou Tao, and the CFO, Ms. Li Yi. Ms. Zhou will review our business strategies, operations, and other company highlights, followed by Ms. Lee, who will discuss the financial performance. They will be available to answer your question during the Q&A session that follows. There will be consecutive interpretations. Our interpretations are for your convenience and reference purpose only. In case of any discrepancy, management statement in the original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1936. as amended and as defined in the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to U.N. standing well-known or unknown risks, uncertainties, and other factors of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ maturely from those in the forward-looking statements. Further information regarding this and other risks and certainly all factors are included in the company's filing with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise as required under the applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It is now my pleasure to introduce our Vice Chairman and the CEO, Mr. Zhou.

Please go ahead. Thank you. Hello, everyone. Welcome to the 2nd quarter of Jinshan Yun in 2025. I'm Jinshan Yun, the CEO, Zhou Tao. Over the past three years, Jinshan Yun has firmly implemented a high-quality, sustainable strategy that embraces AI in a comprehensive way. The company's business is fundamentally changing. We have not only achieved a double gain in revenue and revenue, but we have also completely upgraded the AIS and PaaS cloud service capabilities around the generation of AI. This quarter, Our business growth and sustainability have been shown again. AI computing business maintains rapid growth, drives the basic cloud to increase demand, and increases income. First of all, our second quarter income reached 23.5 billion yuan. The same growth was increased by 11% in the previous quarter to 24%. The public cloud and industry cloud all achieved the same growth. Among them, the public cloud increased by 32%. with a revenue of 16.3 billion RMB. Second, the A.I. strategy of Embrace continues to work well. This quarter, the A.I. business bill has a revenue of up to 7.3 billion RMB, with a growth of more than 120%, and a return growth of 39%. The A.I. business accounts for 45% of the total revenue of Gong Youyun. In other words, in the past two years, we have successfully At the same time as the high-quality development of basic cloud business Created an almost the same volume of computing cloud business The rapid development of the generation itself And the need for AI to land thousands and hundreds of pages Opened the ceiling of the cloud service market We will continue to embrace AI to improve technical ability Grinding and computing products Be the leading enterprise in the generation of AI Third As the only strategic cloud platform of Xiaomi Jinshan Ecology, we firmly grasp the vast needs of eco-customers, and coexist with the eco-customers. In this quarter, the income of Xiaomi Jinshan Ecology reached 6.3 billion RMB, which increased by 70%, but the total income ratio further increased to 27%. In the first half of 2025, the income of Xiaomi Jinshan Ecology Hello, everyone.

Thank you and welcome all for joining Kingsoft Cloud's second quarter 2025 earnings call. I am Zou Tao, CEO of Kingsoft Cloud. During the past three years, the company firmly implemented high-quality and sustainable development strategies, fully embraced AI opportunities, and our business fundamentals have taken on a completely new look. We have not only achieved a growth in both revenue and profitability, but also extensively upgraded our IaaS and PaaS cloud service capabilities for the generative AI era. This quarter, our business sustained growth capability was once again verified. The high-speed growth of AI intelligent computing business has driven incremental demand for basic cloud services, further accelerating revenue growth. First, our Q2 revenue reached RMB 2.35 billion, representing a year-over-year growth of 24%. a significant acceleration from previous quarter's 11% year-over-year. Both public cloud and enterprise cloud achieved year-over-year growth, among which public cloud increased significantly by 32%, reaching RMB 1.63 billion. Second, our embracement of AI continues to unleash favorable momentum. This quarter, AI growth billing reached RMB 728 million, representing a year-over-year increase of over 120% and a quarter-over-quarter growth of 39%, accounting for 45% of public cloud revenue. In other words, over the past two-plus years, while successfully driving high-quality development in our basic cloud business, we have also built and intelligent computing cloud business of nearly equivalent scale. The rapid development of GenAI itself and the demand for its implementation across diverse industry verticals have lifted the ceiling of cloud services markets. We will continue to embrace AI, enhance our technical capabilities, refine our intelligent computing products, and be a leading player in the era of GenAI. As the sole strategic cloud platform of the Xiaomi and Kingsoft ecosystem, we firmly grasp the enormous demands of ecosystem clients and pursue symbiotic growth and mutual success with the ecosystem. This quarter, revenue from Xiaomi and Kingsoft ecosystem reached RMB $629 million, up 70% year over year, with its contribution to total revenue further increased to 27%. In the first half of 2025, revenue from Xiaomi and Kingsoft ecosystem reached RMB 1.13 billion, accounting for 40% of the total annual cap of related party transactions in 2025. Benefiting from the continued prosperity of the Xiaomi and Kingsoft ecosystem and ever-expanding business opportunities, we're fully confident in further growth of ecological business collaborations in the second half of this year.

Next, I would like to introduce the performance of the second quarter of 2025. In terms of public cloud, the income of this quarter is 16.3 billion yuan, which is 32% of the total growth. The development of the computing cloud and the basic cloud is complementary. The number of customers in and out of the ecosystem is growing rapidly. In the field of computing cloud, and the gradual increase in the demand for cloud-based algorithmic services, the cloud-based algorithmic services can continue to develop. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is leading in various fields in the field of land application applications. On the one hand, AI is And the growth of high-quality basic cloud services has eliminated our initiative to reduce the income pressure generated by low-power businesses. In terms of ecological customers, we deepened cooperation with Xiaomi to integrate advantageous resources for both sides to provide Xiaomi with long-term stable high-performance cloud computing services. We also ensured the smooth online service of Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District, Xishan District

Now, let me walk you through the key business highlights for the second quarter of 2025. In public cloud space, revenue reached RMB 1.63 billion this quarter, representing a year-over-year increase of 32%. The development of intelligent computing cloud and basic cloud has been mutually reinforcing. With cloud consumption growth from both ecosystem internal and external clients advancing in parallel. In terms of intelligent computing cloud, the solid demand for training computing power services and the gradually growing demand for inference computing power services have laid a solid foundation for the sustained development of intelligent computing cloud. On one hand, the implementation and application of AI across various industries have begun to emerge. Customers, such as large language model companies, internet audio-video services, real-time communication, online travel agencies, and gaming have added incremental demand for AI REST inference. On the other hand, the growth in data volume driven by AI has boosted the growth of basic cloud services. And growth in such high-quality basic cloud services has offset the revenue pressure caused by our proactive scaling down of low-margin services. In terms of ecological customers, we deepened our cooperation with Xiaomi, integrating the advantageous resources of both parties, providing long-term, stable, and high-performance cloud computing services for Xiaomi. We also ensured the smooth launch of Sword Heroes Fate Zero by Season Games, a subsidiary of Kingsoft, by providing products and services such as database and Cloud Elastic Compute.

In terms of the industry, this quarter's revenue of 7.2 billion RMB has increased by 10%. In terms of the industry, in the public service sector, we, together with Jinshan Office, have officially launched the Jinshan Zengwu AI integrated machine. In the AI plus Zengwu Office scene application, we have increased investment. provide computing services, platform services, and large model services, and other fields of full AI capabilities. JinShan Yuyun and JinShan Office's strong co-operation this time has promoted the technical integration and implementation of the real AI field to provide a repeatable solution for the real digital transformation. Digital health field, with the top-level planning capabilities leading the industry, data governance system, stable technology base and AI capabilities. We continue to build regional health and hospital information-based capabilities in the digital health field. In this quarter, we focus on the long-term city comprehensive health information platform project to assist the Internet interaction of local health big data. In addition, the data lake project of Zhujian Hospital of the Southern Medical University of the South, Wuhan University, Zhongnan Hospital Information System Cloud Research Project are also under construction. In the field of corporate service, we focus on AI in multi-industrial scenarios, landing in complex business models, and really improving the efficiency of corporate business to achieve process intelligentization. This quarter, we first cooperated with a large national bank to promote the automated report project, and built a banking industry benchmark project to apply AI capabilities end-to-end in complex core business scenarios. to achieve data collection, analysis, decision-making, report writing, and other full-scale intelligentization, and greatly improve the work efficiency of bank client managers.

In enterprise cloud space, revenue reached RMB 724 million this quarter, representing a year-over-year increase of 10%. In terms of public services sector, we partnered with Kingsoft Office to take the lead in officially releasing the Kingsoft Government AI all-in-one server, increasing investment in AI plus public services scenarios, and providing full stack AI capabilities, including intelligent computing services, platform services, and large language model services. Through the strong cooperation between Kingsoft Cloud and Kingsoft Office, we have successfully integrated AI technology with practical applications in public services sectors. This provides scalable and replicable solutions for customers' digital transformation. In the healthcare sector, drawing on our industry-leading capabilities in top-level planning, comprehensive data governance, robust technology foundation, and AI capability, we're continuously building the information capabilities for regional healthcare systems and hospitals in the field of digital health. In this quarter, we won the bid for the Changchun Municipal Public Health Information Platform project, facilitating the interconnection and sharing of local health big data. In addition, we're also working on the construction of this data lake project of Zhujiang Hospital of Southern Medical University and the cloud-native hospital information system of Zhongnan Hospital of Wuhan University. In the field of enterprise services, We are committed to implementing AI in multi-industry scenarios and complex business models, truly improving enterprise operational efficiency and achieving process intelligence. This quarter, we took the lead in cooperating with a major state-owned bank to advance the credit report automation project, building a benchmark project in the banking industry. We applied AI capabilities end-to-end in complex core business scenarios, enabling intelligence throughout the entire process, including data collection, analysis, decision-making, and report writing, which has significantly improved the work efficiency of bank account managers.

产品技术方面,我们继续秉持技术利益, 聚焦于打造核心产品的一流客户体验。 The company's basic cloud and the self-proclaimed cloud production team are head-to-head, relying on the stable public cloud basic capabilities to fully enhance the public cloud AI plus PaaS platform capabilities. Continuous optimization of AI components, using cloud container service as the base, providing e-sale resource storage, AI load and download, smart operation, resource observation, and other open-vendor cloud native components, and providing all-in-one support under large model scenarios. We continue to optimize the ability of the new stream to promote integrated platforms, provide the AI industry with the ability to process data and service, and the ability to process data to manage tasks throughout life. Our smart cloud helps customers improve model training effects, reduce unit costs in terms of resource management, data management, and network communication and insurance. In addition, we have released a new version of the Galaxy platform facing the industry cloud, which supports multiple mainstream processor platforms and domestic operating systems.

In terms of product and technology, we uphold the principle of building success based on technology and innovation, focusing on delivering best-in-class customer experiences across our core product offerings. We set up basic cloud and intelligent computing cloud R&D teams separately but collaboratively to improve the AI FastPass capabilities on top of our robust public cloud infrastructure. This quarter, we continued to optimize our AI suite. Using cloud container services as the foundation, we provide out-of-the-box cloud-native components such as heterogeneous resource management, AI workload scheduling, intelligent operation and maintenance, and resource monitoring, offering full lifecycle support for last-language model scenarios. We continue to optimize the capabilities of the Starflow training inference integration platform, providing data sets, simulation service capabilities required by the AI industry, as well as full lifecycle management of data processing tasks. Our intelligent computing cloud technologies help customers improve model training performance and save unit costs through optimized resource management, data governance, network communication, and protection. In addition, we released a new version of Kingsoft Cloud Galaxy Stack, supporting multiple mainstream processors, platforms, and domestic operating systems, and improving its capability for private deployment scenarios.

In summary, AI is developing for cloud computing, and cloud computing supports AI model capability to quickly develop and use. We continue to build and upgrade our cloud resources into our advantageous industry, strengthening AI in the fields of politics, finance, healthcare, and other fields, accelerating AI applications in each industry and industry, improving productivity, improving user experience of products, and obtaining additional income growth, etc., all see the real effect of AI. Looking forward to the future, we believe that the market opportunity brought by the AI revolution has just begun. Over the past two years, we will embrace the comprehensive ability of AI strategy to accumulate polishing, continue to upgrade Xiaomi Jinshan's eco-friendly and high-quality external customers, focus on polishing core products and solutions, and continue to create value for our customers, shareholders, employees, and other interested parties. In addition, this quarter, we have welcomed the company's new CFO, Li Yi. Next, please welcome Li Yi to introduce the financial performance of the second quarter to everyone. Thank you.

Overall, AI is injecting new momentum into cloud computing, while cloud computing, in turn, is essential to support rapid model training and adoption. We continue to build and upgrade our intelligent computing cloud resources, and at the same time, leverage our expertise to enhance AI implementation into key sectors like public services, financial services, healthcare, and other fields. AI adoption is accelerating in various sectors and its substantial ability to improve productivity, enhance user experience, and generate additional revenue streams has been verified. Looking ahead, we firmly believe the market opportunities brought by AI revolution have just begun. We will leverage on the comprehensive capabilities we have accumulated over the past few years by embracing AI, continue to deepen our commitment to the Xiaomi and Kingstop ecosystem, and high-quality external customers. and focus on polishing our core product and solution capabilities to create long-term value for our customers, shareholders, employees, and other stakeholders. In addition, this quarter, I would like to extend warm welcome to the company's new CFO, Ms. Li Yi. I will now pass the call to Li Yi to go over our financials for the second quarter of 2025. Thank you.

Thank you all for joining the call today. It's my pleasure to join I'm looking forward to working collaboratively with the team to navigate the challenges, capitalize on opportunities, and do my best to contribute in the execution of high-quality and sustainable development strategy. Thanks for the trust of the board, company, and the stakeholders. Now, I will walk you through our financial results for the second quarter of 2025. This quarter, our AI strategy continues to be successful. driving business expansion across all products. Total revenues for this quarter were RMB 2,349.2 million, reflecting a 24.2% year-over-year increase. Of these, revenues from public cloud services were RMB 1,625.3 million, up 31.7% from RMB 1,234.5 million, in the same quarter last year. This growth was primarily fueled by a surge in AI-related business, with the growth ceiling hitting over 120% year-over-year increase to RMB 728.7 million. Proven use for enterprise cloud services reached RMB 723.9 million, up 10% and 1% from RMB 600 57.2 million in the same quarter last year, permanently joined by high demand for IT delivery services and steady progress on our external enterprise projects delivery. Total cost of reuse was RMB 2010.4 million, up 27.8% year-over-year, which was mainly due to our investment into infrastructure to support AI business growth. IPC costs increased by 10.3% year-over-year from RMB $728.2 million to RMB $803.1 million this quarter, which was mainly due to our increased purchase catering to our new AI clusters demand. Depreciation and amortization costs increased from RMB $265.9 million in the same carried last year to RMB 552 million this quarter, mainly due to depreciation of newly acquired high-performance servers to expand our AI business, as well as the regular CPU servers to support the computing and storage demands ordered by AI-related customers as this dataset is floating. Solution development and service costs rose by 14.8% year-over-year, from RMB 491.1 million to RMB 563.7 million, streamed by expansion in solution architecture and delivery personnel to support real new growth. Fulfillment costs and other costs were RMB 25.8 million and RMB 65.8 million, these costs respectively. Our adjusted gross profit for this quarter was $350.6 million, increased by 8.4% year-over-year and 7% quarter-over-quarter. It was mainly due to the expansion of our revenue scale and the enlarged contribution from AI business. Adjusted gross margin was 14.3%. nine percent in this quarter, combined with 70 percent in the second quarter, 2024, and 16.6 percent last quarter. Our adjusted growth margin has been negatively impacted by the higher cost of service, along with the expansion of our AI business. An upfront cost incurred for certain customers for its future revenue activity, as well as the price pressure of certain large-scale clusters, On the expense side, excluding shareback compensation costs, our total adjusted operating expenses were R&B $566.7 million, increased by 1% year-over-year and 31.2% quarter-over-quarter. Our adjusted research and development expenses were R&B $183.1 million, decreased by 8.5% from same quarter last year. The decrease were mainly due to the decrease of personal risk resulting by our strategic adjustment for research teams. Adjusted selling and marketing expenses for RMB 109.5 million decreased by 6.8% year-over-year. Adjusted general and administrative expenses for RMB 206.1 million increased by 12.8% year-over-year. due to the increase of credit loss resulting from prepayment made to suppliers related to the procurement of certain services. Our adjusted operating loss was RMB 166.1 million, narrowed by 11.7% from RMB 188.5 million in the same period last year. The improvement was mainly due to the share-based compensation adjustment However, the adjusted operating loss increased compared with RMB 55.8 million from last quarter. It was mainly due to the increase of credit loss caused by the prepayment made to certain server providers. Our non-GAAP EBITDA profit was RMB 406 million, increased by 5.7 times of RMB 66 million in the same quarter last year. Our non-GAAP EBITDA margin achieved 73% compared to 3.2% in the same quarter last year. It was mainly due to our strong commitment to AI cloud computing development, strategic adjustment of business structure, and our strict control over cost and expenses. As of June 30, 2025, our cash and cash equivalent total RMB $5,464.1 million, providing a strong liquidity position to support operations and AI investment. The increase was mainly due to our public equity offering and private placement with Kingsoft Corporation, as well as the prepayment we received from strategic customers, which will be used to support its further class construction. This quarter, our cap expenditures, including those financed by third parties, reached RMB 1,135 million. And the rights of used assets obtained in exchange funds, the last list is updated to RMB 1,665.8 million. Looking ahead, AI technology has created a wealth of opportunities for cloud computing. Not only the computing demands brought by modern training and inferencing, we also help enterprises to adopt AI capabilities into their complex business scenarios. Our company, as a neighbor of AI, provides cutting-edge technology and computer resources to all kinds of customers. How do they deliver sophisticated AI models and platforms without the need for extensive in-house infrastructure? and a large amount of capital expenditures significantly lowering the barriers to entry and accelerating technological breakthroughs across various sectors. Thank you all.

This concludes our prepared remarks. Thank you for your attention. We are now happy to take your questions. Please answer your questions in both Mandarin, Chinese, and English, if possible. Operator, please go ahead. Thank you.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. We will now take the first question from the line of Wenting Yu from CLSA. Please go ahead.

Hi, everyone. Good evening. I'm Wenting from CLSA. Thank you for the opportunity to ask me a question. I have two questions to ask. First, can you please share with the management team the company's view and guidance for the second half of the year and the first half of the year? We see that you are in the AI field of automation and AI. How is the rhythm of the algorithm on the network? I would also like to ask about the demand for AI in the AI field and in other industries. Have we seen any large model manufacturers affecting the expansion and even the needs of the existing groups in terms of model delivery? Are there any other industries that have a brighter demand for AI? The second question is about the net profit. This year, companies are using more CVM methods to obtain 3 billion yuan. We also see that the capitalization process has a certain impact on the net profit. I'll translate the question. The first question is, could management share the outlook and guidance on the revenue outlook for of the second half of this year, and also the first half of next year, and how is Xiaomi's investment pace in AI and autonomous driving infrastructure? Additionally, what are the AI capacities and what trends can industries like AI Six Tigers and the others, do we observe large model vendors motor model, and reduce demand for computing consumption, and which other industries show strong react infrastructure demand? And second question is regarding the gross margin. This year, KCA has adopted more leasing of compute resources, and this has already impacted gross margin in the second quarter. And looking ahead, do we expect gross margin to continue to decline in the coming quarters as we use more leasing? What is the current proportion of the leased capacity in the overall computing resources pool? and what is our target for preferred racial? Thank you.

I'll answer first. We'll see if there's anything else to add. From our current full-year forecast, the average in the second half of the year will be better than the previous one. This is very specific. We haven't done any research on it yet. This is a red flag situation. The second is the concern you mentioned about our internal customer Xiaomi. In fact, from the second half of the year, we are continuously helping it to hand over a group that is bigger than the above. Because it is not convenient for us to say that Xiaomi did not synchronize with the outside. But it must be a larger scale. In general, you just talked about this. A trend problem I understand is that this training of these customers This is a what trend ah push is a trend Well, especially after DPSIC came out I think each family is still not the same performance Some customers are indeed Well, it's just a reduction of this investment in training Use the open source to do it But some customers are still continuing to follow up So you can't just say yes So in general, it's the same as in the first half of the year. What about the increase in this calculation? We can understand that the development of this industry itself is still very fierce, because it also involves some of our customers' privacy, so it is inconvenient for us to talk specifically about which one it is at this meeting. I hope that everyone will pay more attention to this news on their own, so I want to express that the entire demand for AI is still very abundant. Of course, you have to divide the training and the return, and I can only say that it is different for each family. You see, Xiaomi is definitely the one who put in the extra training But some of the big companies, to be honest, it's been obvious since last year, especially as we get into this year, that their own return needs are extremely abundant OK, this is a relatively broad answer to your first question

So let me translate briefly for Mr. Zhou's answer to the first question. So generally speaking, since you're asking about the expectation for the second half growth, I would say that the second half revenue growth, we would expect that to be stronger and better than the first half. That's the general holistic revenue top line situation that I would like to share with you. And secondly, since you asked about Xiaomi, what I can say is that we are in the process of delivering an even larger cluster for Xiaomi's computing power demand without further details about the Xiaomi confidentiality concerns. Thirdly, since you asked about the trend, especially in terms of training versus reference, I would say that after the debut of DeepSeq, the different players in the market started to exhibit different patterns in terms of investment. Some of the players continued to invest heavily in the training of models, and that would include Xiaomi as well, right? But some other players actually have, to some extent, increased some of the investment in computing power demand. However, we have also been seeing some of the other large enterprises since last year continue to have even stronger inference computing power demand for inference. So I guess generally speaking, it's hard to comment on each player, each customer that we engage with due to customer confidentiality reasons. But I would say that overall speaking, the market demand for AI continues to be very strong.

Thank you. The second question is a very good question. Let me answer it in a systematic way. Currently, This is actually from the bottom of last year We are in this It should be said to be the result of a balance between risk and income Well, you can also see that in fact, in the past, Xinshanyun was actually a rich business through its own This way of investing is this way although the net profit level is relatively higher, but it is in a state of high debt rate for the long term. In fact, whether it is the internal investor or the external investor, there is actually a great risk. From the beginning of last year, we are making adjustments. This adopts the model of our resource pool mentioned just now. In fact, you can understand this cooperation division model. In fact, it reduces our investment in free development. But at the same time get this this this certain return of this way so These two should say the whole year ran down ah today this blind level It did come out It's a little bit lower than last year, but in fact, in fact, from this actual representation of this This data, I think, is very good to reach our strategic expectations or this kind of balance is a very good one If you just look at our decline from a profit perspective, then in fact, our division mode is still very successful. We didn't divide too much. But in fact, it's not. So we are also a reasonable profit ratio with our customers. In fact, it reflects the efficiency of our daily business, the control of cost, and the extent of each dimension. There is still a further improvement. Today, what I simply saw is a comprehensive representation of a drop of more than one point. So I am very, very satisfied. Second, you talked about the future. The ratio of freedom and the ratio of rent, what kind of trend will it be in the long term, and the further impact on our labor. First of all, we haven't disclosed the ratio of the rent and the rent, but as of now, there are still more rents and fewer rents. In the future, in addition to this rent mode, in fact, I also introduced some of the three-generation models of big customers in the previous few weeks. In fact, we are already promoting it on the Internet. The effect of this actual landing is also very, very good. So in the future, we may not be two kinds, but three kinds. It's a way of running this self-taught business and a way of cooperating with rents. There is also a three-generation model of building and operating. So the proportion of these three will be different depending on the type of customer or the size of the body. Therefore, it is difficult to judge how deeply the overall overall impact of the overall profit margin will affect the overall profit margin. But in general, we still look at it from the balance that we just talked about. In fact, from the perspective of the balance between the risk and profit, We believe that our experience is gradually getting richer and richer. The power of this hold is also getting more and more accurate. All right. Of course, this is running again. At the end of the year, I think basically this kind of comprehensive model will present what kind of comprehensive horsepower? What level of stability is it? It will be more clear, but we have also calculated that it should not have too much input from now on. All right.

So in relation to the question regarding gross profit margin and its future trend, I think this is a very good question. I would like to put that into the context of our growth model since last year. If you recall since last year, our old model was purely based on self-procurement, which comes with a high CapEx level and also comes with a high gearing ratio. We've been asked a lot of questions by the investor community highlighting to us the potential risk in relation to that model. So since the second half of 2024, given that consideration, we have adjusted and pivoted to some of the new models, which we would call the resource pool model, or the profit sharing model, where capex level would be relatively lower, and also we would benefit from lower hearing ratio. So overall speaking, because of that shift of that procurement model, although there is a slight decrease of chipping margins, however, I would say we generally achieved the strategic choice that we made for that changing of procurement model. And therefore, I think it's actually quite a good success. It's a successful result. And since you also asked about the ratio between the self-owned assets versus the profit-sharing model, I would say that we haven't disclosed the particular number in that regard. However, so far I can tell you that the self-owned assets still command the majority of those assets on our balance sheet. In the future, I would say that in addition to the two models that we already have, we're already exploring a new model which we have applied in one of the key customers, which I would call the agent model. which essentially means that we would do on our customer's behalf with our help. We would do the procurement, we would do the construction, and we would do the operation on behalf of that customer. So putting this together, we're actually having three models. And the particular adoption of any one of these models will purely depend on the demand of those particular customers. and the overall balance that we would like to achieve in terms of gearing ratio and the capex and indefinite level. So I would say that in general, as we continue to run our different models and their combinations in the next few quarters, we'll have a clearer picture as to where the GP margin will stabilize at. But as far as I can see from this point in time, I would say that the GP margin level relatively will stabilize of where we are right now today.

Thank you. Next question, please. Thank you. Thank you. We will now take the next question from the line of Xiaodan Zhang from CICC. Please go ahead.

Good evening. I have two questions. The first is to ask about the problem of AI computing. Since we are now using a more diverse model of computing resources, I would like to ask the management to update the capital investment plan of our free capital this year, as well as a comprehensive model and a judgment on our current customer needs. At the end of the year, what kind of level of computing resources can we use? The second question is about the industry cloud. So thanks management for taking my questions. And my first question is regarding our capital expenditure plans. So could management update on your capital expenditure plan for this year, and what is the expectation for AI computing power that will be ready to use at the year end? And secondly, the year-over-year revenue growth of Industry Cloud has reaccelerated from the last quarter. So could you please share some color on the demand and also your delivery pace of the Industry Cloud clients? Thank you.

For this year's cap expenditure, including sales, procurement, and need-to-purchase models, as we mentioned last quarter, for the total year, it's around $10 billion. For the first half of the year, actually, we have spent around $5 billion. As Zouzou mentioned, now we have three models. So because we have quite a strong cash position as of the 31st of June, so that is why at this time we will adjust our procurement process and the models according to the customer's demand. So we still think for the whole year the cash is around 10 billion.

Let me answer the second one. From your point of view, the increase in the number of QRs in the entire industry, you just talked about a few problems, which is equivalent to a few small problems. This kind of demand, from our point of view, a change in the demand of the industry trend, and whether it will continue in the second half of the year. In fact, with this year's deep-seq, especially in This is a traditional industry. The impact is still very deep. In fact, it has played a role in educating and promoting popularization. So this year, the demand for industry customers that we see is very, very abundant. Of course, it includes all kinds of integrated machines. We also released it. Of course, ours is the animal integrated machine with the office. In fact, what we see includes finance, medicine, education, and many other industries. The needs of AI are very, very abundant. Of course, if we really want to expand, even if we are in the same industry, the need to divide the scene is also very, very abundant. So my own summary is that now it is due to what I am talking about internally, This big model has to be recorded for hundreds of pages Such a stage But what is painful Painful especially these two days We had a meeting with Lei Dong and learned a word It's the word of experience It's really in a specific scene Can apply AI And it's easy to use To be honest, it's a long way off So we, we, we, uh Our approach today is At least the strategy I set is to say Don't just come up and spread it so wide More around from 0 to 1 Ah, choose a few A few scenarios are really going to be done So I just talked about this at the second meeting In fact, we didn't say anything like I just talked about a big bank in China This one, this one, this one, now includes survival in this field We think the quality of delivery is very, very high Yes, the client is also very recognized So? What is the conclusion? The demand for the industry is very high. We are more selective in choosing certain specific scenarios to achieve breakthroughs from 0 to 1 in the future, and then to achieve breakthroughs from 1 to N on the basis of 0 to 1. OK. Then you talk about the increase in the number of Hangyun in the second half of the year. From the current situation, we actually play Q4 this year, which is the biggest Hangyun of the year. Because many projects So allow me to quickly translate.

First of all, I would say that what you observed is correct, the trend for enterprise cloud revenue in Q2 to grow faster than before. Now, the first reason I would say is the advent of deep seek. Jim Kwok said the advent of deep seek has a very good and very deep impact in terms of the relatively more traditional industries in China. It's like a customer education process. where we're seeing a lot of strong demand coming from the public services, from healthcare, from education, from financial services, et cetera, et cetera. However, we currently still have this pain point, which is we're still not at the position where we're able to provide our customers with a very easy-to-use application. So the final landing or application of the software or AI solution is still not there yet. So the strategy of Kingsoft Cloud, what we internally, you know, to our management is actually We need to reframe the impulse to actually spread our work and our energy across too much and too many verticals. Rather, we would ask the company, the people, to actually focus on a few focus areas where we have relative competitive advantages. And then working on those solutions to achieve the so-called zero to one breakthrough, and then further do the one-to-end spreading out an application. So that's what we're doing now internally in terms of the enterprise cloud and its combination with generative AI. Now, we also asked about the trend for the second half. Generally speaking, for enterprise cloud, the delivery peak had always exhibited this technology that the second half to be better than the first half. So as we look at the forecast for second half, the growth rates for revenue for the second half of this year, we do expect that to be significantly better and higher than the first half of this year.

Thank you. Thank you. We will now take the next question. From the line of Song from Citix, please go ahead.

Hello, I'm Xu Song, the interpreter of the central computer. Thank you for the opportunity to ask me a question. I have a question about the supply end. We can see that the supply end of the chip is also changing at this time. For example, in recent times, we have seen a recovery supply of a chip similar to H20. including B30A and other overseas chips that will be sold to the mainland. However, we have also seen some cases of chip loopholes similar to those of overseas chips, which may indicate that the following purchases need to be more cautious. I don't know if we will continue to use the same purchase idea or strategy So I will translate the question. We see that the current chip supply set is undergoing some changes. H20 resumes supply, B30A and other chips will also be sold. But at the same time, issues such as chip security vulnerabilities may also suggest that the next development needs to be more cautious. We have made strategy adjustments to our chip persistence ideas, such as embracing domestic production.

Thank you. In fact, your question, from the beginning of our two or three years, we should think from a strategic point of view, it is still very mature. On the one hand, the influence of this big geopolitical policy of the Sino-US, the uncertainty has increased a lot. So, on the one hand, we are embracing some of the chips that have been around because it has been approved in China. On the other hand, the cooperation established by the state-owned company has been actively embraced since the beginning of the second or third year, especially the high-end chips that have been around these two years. You see, H20 was sold on the 16th of April, the day of our financing, and it was released a few months later. This kind of truth is in our memory. So in the past few years, we have always had such a strategy. Especially this year, our close cooperation with China is getting stronger and stronger. From one home to n home But basically we are all in full contact And some have already had deep cooperation So that's what you just said About this kind of situation I believe in the future I believe it will be quite a long time Will still toss Including the models you just talked about Maybe this will be sold out tomorrow The day after tomorrow will not be sold out The day after tomorrow will be sold out again This will be the case But for us This influence is still controllable I think from the first day we started doing this There are enough reserves, that is, two ways of walking. This is one. The second one, in fact, I also talked about this problem when I answered the previous few questions. In fact, we focus on large training and large classes, including our Xiaomi Jin Shan system. So based on the current state of development of our customers, we think that combined with our The attack strategy we just talked about We think it can still be satisfied at the moment Can be satisfied But I also talked about my point of view in the first two cases If this kind of push-and-pull application outbreak in the future In fact, from a long-term perspective If the state-owned enterprises can't keep up I think there will still be a lot of pressure A lot of pressure It's the same for us, for the industry It's the same for us, right So in the medium term From a mid-term perspective Because of the choice of our own attack strategy, it makes our business stable and can still be secured. But in the long run, it still depends on the performance of the country. Whether it is performance or productivity improvement and improvement, it actually plays a decisive role. I am still pessimistic. In the next three or five years, I think the technology war between China and the United States

Okay, so actually to your question, we've been given this a lot of thinking and contemplation from a strategy perspective in 2003 as we started to venture into the AI, generative AI computing cloud business. Because this is the general, broader picture under the final US geopolitical conflict. which gave rise to huge uncertainty in the supply chain. So on one hand, now given that backdrop, on one hand, we embrace the compliant chips that are supplied in China. And on the other hand, we have also been closely monitoring and following domestic firms for supply chain. To be quite fair, the restriction for H20 actually happened on the day of our equity follow-on issuance. And the ensuing lifting of that restriction, you know, happened a few months later. However, we're not too surprised by that because, you know, given the backdrop, given the conflict nature. close business cooperation with suppliers for domestic chips in China, starting from one firm to many firms. And actually, a few of them we have very deep collaboration with. So in summary, although there have been back and forth in terms of supply chain uncertainty, however, there's no material impact to our capabilities to supply and satisfy the demands of our customers. Now also zooming into our particular situation, right, because the majority of our customers are large customers, our key accounts are large customers. And combining these strategies that I talked about, so far our capacity and all the channels that we have built both for domestic chips and also for overseas chips are sufficient to supply their demand. So that is the situation right now in the short term. However, I do think that in the longer term, If there's going to be, for example, like a killer app, Gen AI application, where the inference demands for our customers experience explosive growth, and then the demands from the industry surge significantly, we do think that there's a chance that in the future, the supply would not be able to meet the demand. So in short, in the future, the balance between supply and demand largely depends on the domestic chips as well as their performance. Personally, I take a relatively conservative view that I think in the future, if demand should surge like that, there's a chance that the domestic chip supply will not be able to meet the demand in the market in China. But that's for the longer term.

Thank you.

Thank you. I would now like to turn the conference back to Nicole Shan for closing remarks.

Thank you. Due to the time limit, we can close our call today. Thank you once again for joining us today. If you have any further questions, please feel free to contact our team. Look forward to speaking with you again next quarter. Have a nice day. Thank you. Goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.