Semiconductor Manufacturing International Corp. (SMIC), China’s largest outsourced chipmaker, has experienced a dramatic 120% rise in its Shanghai-listed stock over the past two months.
The surge highlights growing optimism around China’s efforts to achieve self-reliance in semiconductor production, even as risks tied to competition and geopolitical tensions linger.
This stock performance has outpaced global giants like Nvidia Corp. and Taiwan Semiconductor Manufacturing Co. (TSMC).
Moreover, the mainland shares of SMIC have outperformed its Hong Kong-listed stock by nearly 50 percentage points, reflecting strong demand from Chinese investors amid a domestic push for chip localization.
China’s self-reliance drive boosts SMIC
China has been ramping up investments in its semiconductor sector, aiming to reduce dependence on Western technology.
President-elect Donald Trump’s expected policies have further fueled expectations of heightened trade barriers, which have encouraged domestic investors to back local chipmakers like SMIC and Hua Hong Semiconductor.
SMIC recently forecast higher-than-expected sales growth this quarter, bolstered by competitive pricing that has attracted local chip designers.
Analysts from Bloomberg Intelligence noted that China’s chip foundries, which produce legacy semiconductors used in industrial and automotive applications, have rebounded faster than their global peers.
Hua Hong Semiconductor, another major player, has seen its onshore stock rise by 78% from its September lows, benefiting from similar localization trends.
Valuation concerns and competitive risks
Despite the optimism, analysts warn that SMIC’s soaring stock may be overvalued. The company’s forward price-to-book ratio of 1.2 is well above its three-year average of 0.9, signaling stretched valuations.
“We believe competition from global foundries like TSMC could intensify by 2025,” wrote Morgan Stanley analysts, who also pointed out that SMIC’s valuation looks unattractive in the context of potential pricing pressures.
Furthermore, the US-led restrictions on advanced chip manufacturing technologies remain a significant challenge for SMIC.
These sanctions limit the company’s ability to compete in high-end semiconductor markets, including artificial intelligence (AI) and advanced processors.
Challenges in the advanced chip market
While SMIC has captured market share in legacy chips, its progress in more advanced areas has been constrained.
Morningstar analyst Phelix Lee noted that SMIC and Hua Hong might struggle to meet demand for high-performance chips used in data centers, especially if Chinese AI startups lose access to cutting-edge processors.
“Artificial intelligence is a small blessing for SMIC and Hua Hong,” Lee wrote, adding that the broader impact of Beijing’s fiscal stimulus may also be overestimated.
Stimulus measures provide support
Amid these challenges, Beijing’s continued fiscal stimulus and accommodative monetary policies have provided some relief to China’s semiconductor sector.
The government has pledged to double down on countercyclical adjustments to support economic growth, offering an additional catalyst for domestic chipmakers.
However, geopolitical tensions and potential retaliatory measures from Western countries could create further uncertainties.
Outlook for SMIC and China’s chip industry
The road ahead for SMIC and its peers is fraught with both opportunities and risks.
While the company’s recent stock surge underscores investor confidence in China’s localization drive, analysts caution against overlooking the structural challenges, including competition and technological constraints.
For now, SMIC remains a focal point in China’s broader strategy to achieve semiconductor self-reliance.
As the chip war evolves, its performance will likely remain a bellwether for the nation’s tech ambitions.
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