Global AI race shows Asia leading as stocks start 2026 with a bang

China's domestic AI chip supply could catch up to demand by 2028, Bernstein analysts say in a research note. China's advanced logic chip production capacity could start accelerating in 2026 and 2027, which could allow domestic AI chip sales to grow five-fold in the next three years, the analysts say. AI chip vendors like Cambricon and Hygon will likely be direct beneficiaries, as they have secured sufficient advanced logic capacity to fuel fast growth in the next few years, they say. Foundries like SMIC and Hua Hong could also benefit but their stocks will be mainly driven by market sentiment given their already high valuations, they add. (sherry.qin@wsj.com)

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.

Foreign investors may shift more funds toward India as the popular Artificial Intelligence (AI) trade in the US, Taiwan and Korea appears stretched, according to Harald van der Linde, Head of Asia Equity Strategy at HSBC.

“I think the AI story can continue,” van der Linde said, but he noted that positioning in key semiconductor markets has become heavy. Stocks such as SK Hynix and Taiwan Semiconductor Manufacturing Company (TSMC) are already large positions in major Asian and emerging market portfolios. Investors may now ask “how much more can you really buy?” he said, which could open the door for more capital to move to other Asian markets.

India could be a key beneficiary. “My suspicion is that as we go into 2026, that foreign investors increasingly going to put India back onto their radar screens,” van der Linde said. He pointed out that Indian equity valuations have become more attractive after the market cooled over the past 18 months, particularly when measured in US dollar terms due to the weaker rupee. As a result, “India is clearly starting to offer good value,” he added.

Currency dynamics could support the shift. The US Federal Reserve has not yet cut interest rates, while India has entered a rate-cutting cycle. If the US starts to ease policy, possibly later this year or in 2026, it could limit further rupee weakness. Van der Linde said foreign investors may then feel “it’s not so bad to go back into India and have that rupee exposure,” along with better entry prices for Indian stocks.

Global monetary policy remains an important factor for market flows. A new US Fed Chair is expected to continue rate cuts, although van der Linde cautioned against aggressive moves that could repeat inflation problems seen in the 1970s.

Japan’s interest rate path may also influence Asia’s investment outlook. Japan is one of the few major economies raising rates due to a tight labour market. A stronger yen may not support Japanese equities but could push Japanese and Korean savers to redirect money elsewhere in the region. Van der Linde said this combination of US easing and Japan tightening could help India attract more foreign capital as 2026 approaches.

AI capabilities could mature and drive more consumer spending on new devices in 2026, such as AI glasses and AI companions, Macquarie analysts say in a research note. Major players such as Apple, Google and Xiaomi are pursuing vertical integration strategies, controlling both hardware and AI software to optimize user experience and foster ecosystem loyalty, the analysts say. As AI models become more efficient and affordable to run locally, device manufacturers could offer functions that were previously only available through cloud services. Across the supply chain, the analysts think the memory sector is set to benefit the most given the shortage of DRAM chips. As consumers upgrade to smartphones with AI functions, that would boost the need for AI chips, boding well for contract chip makers like TSMC. (sherry.qin@wsj.com)

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).