At KUAISHOU-W's Photosynthesis Creator Conference held on August 29th, AI business emerged as the primary focus of attention.

Morgan Stanley analysts Yang Liu and team indicated in their latest research report that during the recent investor day event, KUAISHOU-W clearly signaled to the market that the company's future narrative, growth engine, and valuation potential are comprehensively pivoting toward AI.

According to company management, since the launch of Kling 2.0 in April, monthly paid revenue has remained stable above 100 million yuan, with overseas users contributing 70% of the revenue. This achievement directly prompted the company to raise its capital expenditure expectations, demonstrating management's firm commitment to AI video generation.

The report cites management's view that model capabilities remain a key differentiating factor and will continue to be a major investment focus. The global video production market has an annual scale of $140 billion, and management expects AI to capture 20%-30% of this market share, with the potential to reach 50% in the long term.

**Kling Business Growth Drives Capital Expenditure Increase**

The rapid development of Kling has become the primary driver for KUAISHOU-W's upward revision of capital expenditure guidance. The company raised its 2025 capital expenditure forecast from 10 billion yuan to 12 billion yuan, with Kling business capital expenditure doubling.

Management noted that numerous new entrants are emerging in the AI video generation field, and overall technology remains far from mature. KUAISHOU-W's competitive advantage lies in its model and product innovation capabilities, with Kling gaining widespread recognition for video authenticity, consistency, and motion performance. Long-term, video personalization will be an important improvement direction, with Kling aspiring for users to assume director roles and experience virtual studio capabilities when using the product.

The report indicates that the company is also developing workflow integration and end-to-end solutions to enhance user stickiness. Management believes that due to model performance gaps and massive infrastructure investments, low-price strategies have limited effectiveness in attracting users, suggesting KUAISHOU-W may become more aggressive in model iteration and pricing to compete for customers.

**AI Empowering Core Business**

KUAISHOU-W launched its new generation AI-based end-to-end recommendation model OneRec in the first half of 2025, with 25% of traffic currently running on this new system. Management observed significant improvement effects: total usage time increased by 1%, local service search click-through rates improved by 5%, and e-commerce search GMV rose by 4.5%.

In advertising recommendations, when using AI to understand advertising content, KUAISHOU-W's internal A/B tests showed recommendation effectiveness improved by 8 percentage points. By correlating user behavior with AI models, customer complaint rates decreased by 20%. OneRec's costs are also significantly lower than previous funnel-based recommendation models.

Management believes that utilizing AI technology to improve advertising recommendations is relatively straightforward, while simulating others' reactions in advertising bidding systems is more challenging, hence there's no rush to aggressively monetize OneRec. OneRec remains in the iteration phase, with management expecting it to soon handle 50%-60% of traffic.

**Core Business Remains Solid: E-commerce and Advertising as Foundation**

In short video industry competition, KUAISHOU-W maintains relative strength among younger generation and elderly user groups, particularly in specific categories like agriculture, performances, and young celebrities. The company believes direct competition is not intense, with sales and marketing expenses as a percentage of revenue expected to decline.

Advertising business continues strong growth in short dramas, gaming, education, and local services, despite food delivery platforms reducing advertising budgets. In e-commerce operations, KUAISHOU-W cleverly employs subsidies and commission incentives, with shelf e-commerce expected to continue rapid growth.

Management emphasizes KUAISHOU-W's advantage lies in content-product relevance. In monetization terms, commission rates doubled over the past year, albeit from a low base. Given GMV remains relatively small compared to other platforms, the company is willing to use partial traffic to subsidize merchants, allowing time for merchant capability enhancement. KUAISHOU-W internally hopes to integrate shelf e-commerce and live-streaming e-commerce advertising platform systems, potentially creating future growth opportunities.

Additionally, the report notes that the company's technical infrastructure optimization continues. Through the new data center cluster in Ulanqab and internal new resource management platforms, KUAISHOU-W has continuously reduced data center and bandwidth costs as a percentage of revenue without affecting user experience.