China's Domestic AI Chip Supply Could Surge in Next Three Years — Market Talk

U.S. approval for Nvidia to sell its H200 artificial-intelligence chips in China might raise the risk of profit-taking for Hong Kong- and China-listed chip stocks, says DBS Group Research in commentary. Companies including Hua Hong Semiconductor and Semiconductor Manufacturing International Corp. were broadly lower in Hong KongTuesday morning following the announcement. However, DBS believes that some Asian companies in the AI space could gain from this development, including data-center operators such as Nasdaq-listed VNET Group. The bank also maintains its positive view on Taiwan Semiconductor Manufacturing Co., Nvidia's key foundry partner, for its leading-edge foundry leadership without policy overhang.(megan.cheah@wsj.com)

By Adam Clark

Chinese chip designer Moore Threads surged more than fivefold on its first day of trading Friday. But it still has a long way to go to rival U.S. semiconductor leader Nvidia.

Moore Threads rose 425% from its initial public offering price to close at 600.5 yuan ($84.92). It raised more than $1 billion in the IPO.

The company is one of multiple Chinese semiconductor designers hoping to take advantage of the gap left by Nvidia's current absence from China's artificial-intelligence chip market. Notably, Moore Threads was founded in 2020 by Zhang Jianzhong, formerly an executive at Nvidia.

That should give the company some credibility, but it has a long way to go before matching its founder's former employer. Moore Threads ended the day with a market capitalization of 282.3 billion yuan, equivalent to slightly under $40 billion, according to LSEG data. Nvidia is worth nearly $4.5 trillion.

Moore Threads has released four generations of graphics-processing units. However, the specifications of its S4000 AI chip are well behind those of Nvidia's older H100 chips. Nvidia's H100 was released in 2022 and has since been superseded by later generations of its Hopper chips and its new Blackwell AI semiconductors.

Moore Threads isn't only far behind Nvidia and other Western companies, it is still a small player in the Chinese domestic market compared with companies such as Huawei or Cambricon Technologies.

Nvidia CEO Jensen Huang has previously said China represents a $50 billion market for AI infrastructure, growing at 50% a year. He has lobbied hard for U.S. permission to sell chips to Chinese customers, arguing it is better to lock China's companies into dependence on American hardware. However, that has raised the ire of Beijing, which has discouraged its companies from buying Nvidia chips.

Write to Adam Clark at adam.clark@barrons.com

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Moore Threads Technology Co., a leading Chinese artificial intelligence chipmaker, surged in its Shanghai trading debut after raising 8 billion yuan ($1.13 billion) in the year’s second-largest onshore IPO.

The firm’s stock soared as much as 502% after being sold at 114.28 yuan a piece during the initial public offering. If gains hold, the debut would mark the biggest first-day pop for an IPO over $1 billion since China’s 2019 IPO reforms, according to data compiled by Bloomberg.

The listing comes as optimism over China’s drive for tech self-sufficiency intensifies, fueled by trade tensions and fears of US technology curbs. Moore Threads’ share frenzy stands out in an otherwise sluggish market, signaling strong investor appetite in specific sectors like this year’s AI winners.

Beijing-based Moore Threads is also among those benefiting from a market share void left by Nvidia Corp.’s forced exit. Earlier this year, regulators eased listing rules for unprofitable firms on the Nasdaq-style Star Board to bolster homegrown startups.

"A surge of this scale can be somewhat expected from the strong demand, and this is one of those flagship IPOs that will go on in history and be remembered," said Shao Qifeng, chief investment officer at Ying An Asset Management Co. "However, from experience, such memorable IPOs don’t always bode well for their respective sectors as could be an indication of froth, at least in some corners."

Proceeds from the IPO will fund next-generation projects in AI and graphics chips as well as supplement working capital. The offering ranks behind Huadian New Energy Group Co.’s $2.7 billion IPO in July. Investor interest in the offering was strong, with the retail portion oversubscribed 2,750 times even after a clawback, making it the second most sought-after onshore IPO over $1 billion since 2022, Bloomberg data shows.

Friday’s gains spurred a rotation out of related stocks, with Shenzhen H&T Intelligent Control Co., which holds a minor stake in Moore, falling as much as 10%.

During the first three quarters of the year, Moore Threads’ net loss was 724 million yuan, according to a Sinolink Securities note, narrowing by 19% from the year ago period. Meanwhile, revenue surged by 182% to 780 million yuan.

Still, its valuations remain lofty. Moore Threads’ price to sales ratio at 123 times the offer price of 114.28 yuan per share is higher than the average of 111 times for peers, according to a Dec. 4 filing. The company recently asked its lead sponsor to remind investors of risks related to its valuations.

Origins

Founded in 2020 by former Nvidia executive Zhang Jianzhong, Moore Threads had started out earning revenue from graphics chips for gaming and visual rendering before pivoting to AI accelerators used in powering large language models.

A major setback came in October 2023 when the US Commerce Department added the firm to its entity list, barring access to key technologies, a move that resulted in job cuts and restructuring.

Despite the setback, investor optimism has only picked up as Beijing promoted the sector as a key part of its push into technology supremacy. The Star 50 Index, which tracks the biggest companies on the Star Board, has jumped more than 30% this year, with shares of chip designer Cambricon Technologies Corp. doubling.

A successful listing could pave the way for others. MetaX Integrated Circuits Shanghai Co., a closely watched peer, opens subscriptions Friday. Meanwhile, memory chipmakers Yangtze Memory Technologies Co. and ChangXin Memory Technologies Inc. are weighing onshore IPOs that could value each at up to 300 billion yuan.

Recent listings have performed well because market sentiment has been muted, “so it makes sense for a sizable jump at its debut,” said Chen Zunde, a fund manager at Guangdong Fund Investment Co. Still, some worry the IPO could siphon funds from peers, adding pressure to the market, he added.

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Cambricon Technologies Corp plans to more than triple its production of AI chips in 2026, aiming to wrest market share from Huawei Technologies Co. in China and fill a void left by Nvidia Corp.’s forced exit. The Beijing-based company is preparing to deliver half a million artificial intelligence accelerators in 2026, people familiar with the matter said.

That includes as many as 300,000 units of its most advanced Siyuan 590 and 690 chips, the people said, asking to remain anonymous discussing private targets. The company will rely primarily on Semiconductor Manufacturing International Corp.’s latest production process, known as “N+2” 7-nanometer, the people said.

The ramp-up at Cambricon underscores the rapid ascent of Chinese chipmakers after Beijing began actively discouraging the use of Nvidia’s product this year, part of a longer-term effort to wean the country off US technology. Huawei is also preparing to double the output of its most advanced artificial intelligence chips over the next year. And up-and-comer Moore Threads Technology Co. debuts Friday in Shanghai, showcasing its own ambitions to carve out a slice of the market.

Cambricon’s shares rose 2.8% in Shanghai, extending its gains just before the market closed Thursday. SMIC’s stock rose 3.9% in Hong Kong, while rival Hua Hong Semiconductor Ltd. climbed 3.1%.

Nvidia boss Jensen Huang said in November that his company is effectively blocked from China, which would spur the rise of more domestic competition from the likes of Huawei. And while the Trump administration is considering a plan to allow the sale of its H200 cards, there’s no guarantee Beijing won’t also hinder its adoption.

Few companies have benefited as visibly from that situation as Cambricon, which reported a 14-fold surge in its revenue in the September quarter — and a nine-fold leap in market value since 2021. It’s now on track to win new orders from some of China’s biggest AI spenders, including Alibaba Group Holding Ltd. in the coming years, the people said. The chip designer already counts ByteDance Ltd. as a primary customer, which accounts for more than 50% of all Cambricon’s orders right now, the people said.

Alibaba, ByteDance, Cambricon and SMIC representatives did not respond to emailed requests for comment.

Whether Cambricon will hit those targets depends in large part on not just the pace of AI development, but also its ability to secure capacity at SMIC — at a time Huawei and other rivals are also vying to place orders with China’s most advanced chipmaker.

For context, Cambricon will build just 142,000 AI chips this year, Goldman Sachs estimates. SMIC’s own technology may prove an obstacle. When it comes to Cambricon’s top-of-the-line 590 and 690 chips, the company is, for now, managing yields of just 20%, the people said.

That means about 4 out of 5 silicon dies — the basic components of a full chipset — are considered flawed and unusable. The top global contract chipmaker, Taiwan Semiconductor Manufacturing Co., now has an estimated yield of at least 60% with its latest 2-nanometer process, which is three generations or seven years ahead of SMIC’s technology, according to some analysts.

Another potential bottleneck is the supply of the high-bandwidth memory chips required to make AI accelerators. That technology remains a challenge for Chinese companies, which is why Huawei’s latest 910C AI accelerators still rely on memory chips from SK Hynix Inc. and Samsung Electronics Co.

By WSJ Staff

Asian semiconductor stocks tumbled on renewed fears of an artificial-intelligence bubble, tracking U.S. declines from Thursday. European chip shares fell too.

• Shares in Samsung Electronics and SK Hynix-the two largest memory-chip makers- dropped more than 5%. The South Korean companies supply high-bandwidth memory products to Nvidia.
• Taiwanese heavyweights TSMC and contract electronics maker Foxconn Technology, formally known as Hon Hai, both fell more than 4%.
• In Japan, technology investment conglomerate SoftBank plunged more than 10%.
• Semiconductor Manufacturing International, China's biggest contract chip maker, lost more than 6% in Hong Kong.
• European chip stocks also fell. Shares of ASML dropped roughly 6% in the Netherlands, while STMicroelectronics, which supplies Apple and Tesla, lost less than 2% in Paris.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

SMIC's still faces lingering gross margin pressure in 4Q, Citi analysts say in a research note. SMIC guided muted 4Q gross profit margin at 18%-20%. The analysts think that its high depreciation cost from expanding capacity will continue to pressure its gross margin outlook. Meanwhile, with memory chip pricing surging recently, SMIC said it may hurt customers' budget allocation to non-memory components, which would lead to some pricing pressure. The chip maker could also face some yield rate issues when ramping up more advanced technology, they add. Citi maintains a neutral rating on SMIC with its H-share target price unchanged at HK$53.00. Shares were last at HK$74.50. (sherry.qin@wsj.com)