Chinese Analog Chip Companies Rise After Beijing Launches U.S. Probes

By Sherry Qin

Chinese AI hardware stocks regained momentum after software giant Oracle's multibillion-dollar contract wins proved to investors that demand for AI-driven cloud computing remains high, easing concerns about tech companies' expensive valuations.

AI chip designer Cambricon Technologies, viewed as a potential future challenger to Nvidia, shot as much as 13% higher in Shanghai, while Chinese contract chip maker SMIC climbed by up to 8.6%. Fellow chip developer Hygon Information Technology surged by its daily permissible limit of 20%.

Thursday's strong, broad gains by semiconductor players reversed the benchmark Shanghai Composite Index's early losses, pushing it 1.65% higher. The Nasdaq-like ChiNext Price Index surged 5.15%, closing above 3000 for the first time since January 2022.

The advances came after database software provider Oracle said it won four multibillion-dollar contracts in its latest quarter and has $455 billion in outstanding contract revenue that it expects to collect for the latest quarter that ended in August.

Without mentioning all of the company's big-name customers, Chief Executive Safra Catz in the postearnings call said Oracle had signed "significant cloud contracts with the who's who of AI, including OpenAI, xAI, Meta, Nvidia, AMD and many others."

The U.S. tech titan's nearly half a trillion dollars in contracts has "stunned the market," Morningstar analyst Phelix Lee said.

"Oracle's blockbuster AI backlog reset the bar for global compute demand higher," Saxo chief investment strategist Charu Chanana said. "And Asia's hardware ecosystem quickly caught the updraft as a signaling effect."

Chinese stocks, especially tech hardware shares, had pulled back last week after posting big gains in August amid China's AI push and drive to produce chips locally. Analysts had previously voiced concerns about Chinese AI-related companies' stretched valuations and the speed of the rally that could alarm regulators.

The slump proved temporary, with Oracle's massive AI deals reviving market sentiment and giving Chinese investors another dose of confidence.

Morningstar's Lee said Oracle's emphasis on "AI inference" could have particularly excited the market, as the process of using a trained AI model to generate content represents real-life applications of the technology.

Global markets have also been seeking validation that the AI boom isn't turning into a bubble.

When U.S. tech leaders like Oracle and Nvidia show AI demand is surging, "it validates the case for Beijing to double down on its own compute capacity," Chanana of Saxo said.

As a result, "investors rush into local suppliers like Hygon or Cambricon as the best proxies," she said.

Write to Sherry Qin at sherry.qin@wsj.com

By Sherry Qin

Chinese stocks stumbled on Thursday after a recent rally, in a possible correction underpinned by concerns that regulators could move to tame excess market moves.

Equities swooned in both China and Hong Kong, led by semiconductor and tech hardware stocks, which had risen the most over the past weeks. China's Nasdaq-like ChiNext Index shed 4.25% in its biggest one-day loss since April.

A lot of the semiconductor names that posted big gains recently are trading on "a very overvalued basis," Morningstar analyst Kai Wang said, noting that the selloff is concentrated in tech-heavy sectors.

Investors have been pouring money into Chinese equities over the past month, encouraged by solid earnings, artificial-intelligence advances and policy moves by Beijing, including a clampdown on competition and overcapacity.

Easing trade tensions contributed to the risk-on mood, and funds have flowed out of deposit accounts and bonds, and into stocks.

The momentum pushed the Shanghai Composite Index to a 10-year high in August, while the Hang Seng Index had its best month since September last year, when China unveiled a bazooka stimulus package.

While a buzzing market is welcome, the speed of the rally could alarm regulators, analysts say, potentially leading to measures to cool the stock market and speculative trading.

Beijing prefers a slow and orderly bull market, Saxo chief investment strategist Charu Chanana said.

"Policy steering is constant and rallies face valuation discipline," she added. If Beijing were to step in to calm the waters, that would mean "inflated AI and tech valuations face a reset without earnings support."

Regulators have stepped in to steady markets before, both during upswings and downturns. Last year, measures included short-selling limits and quant trading curbs.

Rising AI star Cambricon Technologies, dubbed "China's Nvidia", is one of the stocks that has been on a rollercoaster ride.

Shares of the AI chip designer hit a series of record highs in August, briefly overtaking liquor maker Kweichow Moutai as the priciest stock in China.

It then issued a warning about trading risks, flagging the risk of stock prices deviating from fundamentals. The stock has corrected since then, and was last trading down 14% in Shanghai.

Another hot stock, SMIC--China's largest contract chip maker--also pulled back on Thursday, sliding 6.7% in Hong Kong.

Tech giant Alibaba and electric-vehicle maker BYD lost 3.2% each in Hong Kong.

But worries about an overheating market could be overdone, said China's state-owned Guotai Haitong Securities.

Rapid gains in popular sectors can put the broader market under pressure, but the case for a bullish medium-term outlook remains intact, said the brokerage.

The benchmark Shanghai Composite Index ended the day 1.25% lower, but remains up 12% year to date.

Hong Kong's Hang Seng Index finished the session 1.1% lower, while the gauge of tech stocks fell 1.9%. Year-to-date gains stand at 25% each.

Write to Sherry Qin at sherry.qin@wsj.com