(May 15): A recent surge in Chinese chip stocks has made them some of the most expensive among global peers, and investors are growing increasingly cautious.
Semiconductor Manufacturing International Corp trades at about 128 times forward earnings for its mainland-listed shares, while peer Hua Hong Semiconductor Ltd trades at 181 times. In comparison, both US-chipmaker Intel Corp and South Korea’s Hanmi Semiconductor Co trade at the lower end of 90 times.
“Valuation concerns are emerging as chip stocks rally, and potential bubble risks may be more pronounced across China’s broader chip sector, where premiums are largely driven by localisation expectations rather than strong earnings,” said Xiang Xiaotian, director at Shanghai Chengzhou Investment Management.
Hua hong reported net income for the first three months of the year that were below estimates, with forecast revenue for the second quarter also missing expectations. SMIC, one of the country’s largest chipmakers, reported a net income miss for the January-March period.
Beijing’s push to localise the chip supply chain and achieve tech self-sufficiency is lifting sentiment for the sector. That helped drive the country’s chip-focused STAR50 index to a record high this week, amid an artificial intelligence-led rally across Asian markets.
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“These companies may benefit materially from the domestic market growth, as overseas peers, no matter how strong they are, won’t have a similar chance to compete,” said Bloomberg Intelligence analyst Steven Tseng. “Investors might have started to recognise their value, especially given the backdrop of a massive rally of chip names in the US, Taiwan, Korea and Japan.”
Still, signs of crowding are beginning to emerge in onshore equities, with turnover topping three trillion yuan (US$442 billion) for a seventh straight session and outstanding margin financing climbing to high levels — both pointing to increasingly frothy positioning in some of the market’s most crowded trades.
Investors will be watching developments from US President Donald Trump’s visit to China, joined by a delegation that includes Nvidia Corp founder Jensen Huang, for potential chips-for-rare-earth deals.
Uploaded by Evelyn Chan
