Buried within Kingsoft Corporation's Q1 2024 earnings call lies a bombshell revelation that has seemingly slipped past the radar of most analysts. While the market focuses on the company's robust double-digit growth in revenue and profit, a quiet revolution is brewing within Kingsoft Office, one that could propel this currently undervalued stock into a new stratosphere of growth: the strategic implementation of WPS AI.

Kingsoft Office, the subsidiary behind the popular WPS Office suite, is making aggressive strides in AI integration, going beyond mere buzzword implementation to a deeply entrenched strategy that touches every facet of its business model. This is not just about adding a few AI-powered features; it's about reimagining the very fabric of digital office solutions.

The company's CEO, Tao Zou, paints a vivid picture of this transformation, emphasizing a multi-pronged approach to WPS AI that focuses on three key areas: AI-generated content, co-pilot functionalities, and intelligent insights. Each of these directions represents a significant value proposition for both individual and institutional users, promising to redefine efficiency, creativity, and collaboration within the digital workplace.

"Zou's enthusiasm for WPS AI is palpable during the earnings call. He reveals that the product has exceeded expectations during its beta testing phase, showcasing strong user engagement and a promising path towards commercialization. This confidence is further bolstered by the company's commitment to continuous optimization, ensuring a seamless and intuitive user experience across diverse scenarios."

But the real game-changer lies in Kingsoft Office's collaborative approach to AI development, particularly within the B2B sector. Recognizing the vast potential of AI to revolutionize entire industries, Kingsoft is actively engaging with its enterprise clients, fostering a 'creation together' model that tailors AI solutions to specific industry needs and use cases.

Revenue Growth: Kingsoft Office vs. Games & Others

Kingsoft's revenue growth is primarily driven by its Office Software and Services segment, which includes WPS AI.

This strategy is not just about providing off-the-shelf AI tools; it's about forging deep partnerships with key players across various sectors, leveraging their domain expertise to develop highly customized and value-driven AI applications. This approach allows Kingsoft Office to tap into a vast and rapidly growing market for enterprise-grade AI solutions, positioning itself as a leader in the nascent field of AI-powered digital office transformation.

Further fueling this quiet revolution is Kingsoft Office's unique positioning within the Chinese AI landscape. Unlike its competitors, who are heavily invested in developing their own large language models (LLMs), Kingsoft Office is taking a more pragmatic approach. They are embracing an 'application provider' role, seamlessly integrating with a multitude of existing LLMs in China, including Baidu's Ernie Bot, MiniMax, and others.

This strategy offers several key advantages. Firstly, it allows Kingsoft Office to leverage the best-in-class AI capabilities without the immense cost and complexity of developing its own LLM. This translates into a more cost-effective and agile development process, allowing Kingsoft to rapidly adapt to the ever-evolving AI landscape.

Secondly, this open ecosystem approach aligns perfectly with China's burgeoning AI ecosystem, fostering collaboration and innovation across the industry. By embracing a multitude of LLMs, Kingsoft Office can cater to a wider range of user needs and preferences, ensuring a more diverse and vibrant AI landscape.

The financial implications of this strategic approach are significant. As LLM pricing continues to decline, Kingsoft Office is poised to reap the benefits, further reducing its AI development costs and enhancing its profit margins. This strategic advantage, coupled with its rapidly growing user base and a robust pipeline of new game releases, positions Kingsoft Corporation for explosive growth in the coming years.

While the market may be slow to recognize the full potential of Kingsoft's quiet AI revolution, the data speaks for itself. With WPS AI poised for commercialization, a collaborative B2B approach gaining traction, and a cost-effective LLM integration strategy, Kingsoft Corporation is on the cusp of a major breakout. This is not just a company riding the AI wave; it's a company shaping the future of digital work, one intelligent solution at a time.

"Hypothesis and Numbers"

WPS AI adoption rate: Assuming a conservative adoption rate of 10% among Kingsoft Office's 602 million monthly active devices, WPS AI could reach over 60 million users within the first year of its commercial launch. Average revenue per WPS AI user: Based on the pricing of similar AI-powered office solutions, an average revenue of $5 per user per month seems reasonable. This translates to a potential annual revenue of $3.6 billion from WPS AI alone. Impact on Kingsoft's valuation: Given the potential for significant revenue growth and increased profitability driven by WPS AI, a conservative estimate suggests a potential doubling of Kingsoft's current market cap within the next two years.

"Fun Fact: Kingsoft is one of the oldest software companies in China, founded in 1988, a year before the birth of the World Wide Web! This deep-rooted history in the tech sector, combined with its forward-thinking approach to AI, makes Kingsoft a compelling investment opportunity."