China's Chip Stock Boom to Reach $900 Billion with Huawei and IPOs.

China's Semiconductor Stocks Poised to Extend Rally on Blockbuster IPOs and Technology Breakthroughs

The rally in China's semiconductor stocks is poised to extend, driven by upcoming blockbuster IPOs and technology breakthroughs, investors and analysts say. This bright outlook contrasts with growing concerns of overheating and concentration risks in US, Korean, and Taiwanese markets as the AI boom stretches well into its fourth year. It also highlights China's continued push to develop its own technology to take on global rivals.

The CSI Information Technology Index has roughly doubled in the past year, adding more than $900 billion in market value. This gain still lags behind the blistering performance of other global chip-dominated gauges, but further catalysts await. China's chipmakers are gaining attention among investors with the upcoming listing of ChangXin Memory Technologies Inc., the biggest memory chipmaker in China. The sector is also in the spotlight after Huawei Technologies Co. unveiled a new chipmaking method that could allow cutting-edge processors to be made more cheaply.

China's push for tech self-sufficiency has helped drive big gains in chipmakers, but they are still a long way from achieving the trillion-dollar market values of the global leaders. Among the nation's largest listed chipmakers, Cambricon Technologies Corp. and Semiconductor Manufacturing International Corp. are worth a bit over $100 billion each. More heavyweights are poised to join the market later this year, including an IPO by Yangtze Memory Technologies Co., a maker of flash storage chips.

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ChangXin Memory filed last week for a $4 billion Shanghai IPO, which would be the mainland's largest since 2022. The listings could temporarily siphon off some funds from other Chinese stocks, but longer term, the funds could help the companies better compete with global rivals and provide benefits for the overall sector. "While chip stocks have already rallied in anticipation, a higher-than-expected pricing of ChangXin could lift valuations across the entire sector," said Kenny Ng, a strategist at China Everbright Securities International Co., calling the IPO "a short-to-medium-term catalyst."

Trading in China's chip stocks has been frenzied recently, with turnover in the CSI IT gauge surging to a record this month, accounting for nearly half of the market's total, according to data compiled by Bloomberg. Valuations have soared as well, with Cambricon and SMIC trading at more than 100 times forward earnings estimates. Beyond the IPOs, Huawei has driven excitement with the announcement of its Tau Scaling Law, a new architecture that could eliminate the need for the most expensive chipmaking equipment. The company aims to produce advanced 1.4-nanometer chips by 2031 with the technology.

"It's a massive breakthrough" that sets a positive goal for China's entire semiconductor industry, said Yan Taw Boon, a portfolio manager at Neuberger Berman. "The key catalyst is how quickly Chinese chipmakers can gain market share and expand the addressable market by increasing adoption of local Chinese semiconductor products among domestic customers." Cost-focused technological progress may help China's semiconductor firms as the global market grows increasingly worried about the sustainability of AI spending.

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"China's chip sector is clearly moving up the innovation ladder to be able to produce its own domestic chips," said Beth Wong, a senior investment specialist for Asian equities at HSBC Asset Management. "From our equity portfolio perspective, we see this as an important investment theme."