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)

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.

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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)

SMIC's 3Q gross-margin recovery is encouraging but likely to remain in the high teens due to heavier depreciation and ramp-up costs, DBS analyst Jim Au says in a research note. Although 4Q revenue may be tempered by customers' year-end inventory adjustments, fab utilization should stay elevated, he adds. The analyst reckons that although tighter export restrictions on advanced tools have limited SMIC's progress on leading-edge technologies, they reinforce its position as China's only domestic advanced-node foundry. DBS reiterates the company's strategic importance to China's semiconductor ambitions, even as near-term margins and returns remain modest versus global peers. The brokerage maintains a buy rating on SMIC's H-shares, but trims its target price to HK$88.80 from HK$90.00. Shares last closed at HK$73.50. (sherry.qin@wsj.com)

Q3 2025 saw revenue rise 7.8% sequentially to $2.38 billion, with gross margin improving to 22.0% and profit from operations more than doubling. Q4 guidance projects flat to slightly higher revenue and a gross margin of 18–20%.

Original document: Semiconductor Manufacturing International Corp. [981] Slides Release — Nov. 14 2025