Hong Kong Stocks Log Best Year Since 2017 as AI Boom Fuels Tech Rally

By Sherry Qin

Beijing's bid for AI supremacy has been hobbled by a reliance on imported semiconductors. To fix that, it is tapping home-grown startups as it looks for the DeepSeek of chip-making.

There is no shortage of promising candidates but most are unprofitable, and they will need to spend heavily to close the gap on foreign-made chips.

Chinese companies' access to advanced accelerators is a critical bottleneck, Macquarie analysts said. The U.S. holds 75% of the world's computational power, China has just 15%, they added, citing data from research institute Epoch AI.

A reform that loosens stock market listing rules could help local chipmakers catch up, giving them access to fresh funding.

"Capital markets serve as a critical lifeline" for China's tech startups, said Terence Ho, EY's Greater China IPO leader.

Regulators over the summer re-opened a pathway for unprofitable startups in strategic industries to list on Shanghai's Nasdaq-like Science and Technology Innovation Board, or STAR. The change is now starting to bear fruit.

Moore Threads, dubbed by some as China's answer to Nvidia, has been the first to go public via that route. Shares of the Beijing-based AI-chip maker surged 425% in its debut last week, putting its market value at roughly $55 billion.

MetaX, which along with Moore is in the club of "Little Dragons" seen as highly promising chip startups, will list soon as well.

Though both have recorded steep losses as they invest heavily in research and development, the relaxed rules mean that even firms with zero revenue can go public. All they need is an estimated market capitalization of at least $566.7 million and products with high growth potential.

It only took 88 days for Moore Threads to get the green light for IPO--one of the fastest-ever approvals in China.

"The rapid approval is a perfect example of the 'unconventional measures' mentioned in the [five-year] plan to overcome bottlenecks in core technologies," said Ho at EY.

The shift aligns with China's latest five-year plan, which has made tech self-reliance its top priority, analysts say. But policy support and more funding don't guarantee companies will turn profitable, nor that chip makers can close the gap with foreign counterparts, especially in a field that requires heavy capex.

Moore Threads, founded in 2020 by former Nvidia executive Zhang Jianzhong, warned on Friday that its revenue growth could slow, raising the risk that it will continue to post losses and miss its profitability target.

MetaX, established by ex-AMD employees, has also yet to turn a profit.

Still, just as investors poured billions into China's tech sector since the "DeepSeek moment" in January when the Hangzhou-based startup released a large-language model to rival OpenAI's ChatGPT, a similar influx could flow into chip companies as more go public.

EY's Ho thinks investors are well aware of the challenges the startups face and the market's focus has been shifting from short-term profitability to long-term value.

Moore Threads' blockbuster debut signals market confidence in China's tech self-sufficiency drive. Other stocks aligned with tech autonomy reflect that too.

Shares of AI chip maker Cambricon Technologies, which listed in 2020, and those of Hong Kong-listed SMIC, China's biggest chip foundry, have more than doubled so far this year.

Getting that self-reliance tag opens the doors to government and private-sector money, even if their financials remain unconvincing.

"Whether a company is profitable or not is not the most important factor we consider when we invest, " said Angela Cheng, chief macro strategist at CGS International, owned by Chinese sovereign fund China Investment Corp.

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

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.

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)