China’s SMIC Continues Surge Driven by AI Optimism and Faster Chip Localization

27.12.2024

Shares of China’s largest chip maker, Semiconductor Manufacturing International Corp. (SMIC), continued to climb amid growing investor optimism surrounding the country’s advancements in artificial intelligence (AI) and its push for accelerated chip localization. On Monday, SMIC’s shares in Shanghai rose by up to 5.2%, eventually settling at a 2.7% gain in the afternoon, extending the 10% surge from Friday. Its Hong Kong-listed shares also rose by 3.7%, bringing the total gain over the past four sessions to more than 16%.

Chinese technology companies, both large and small, are increasingly focused on developing AI models that are more efficient, affordable, and specialized. This growing investment in AI is expected to benefit semiconductor companies, including SMIC, which are positioned within the hardware supply chain. Recently, ByteDance, the parent company of TikTok, unveiled an advanced visual recognition AI model and a new version of its large language model, Doubao Pro. The latter has gained attention for being on par with GPT-4 while being significantly more cost-effective.

The demand for advanced AI models is reflected in the sharp rise in token usage for ByteDance’s Doubao model, which has surged 33-fold since May. Analysts believe that visual recognition AI, in particular, could drive new consumer applications, including AI-powered glasses. These advancements in AI are expected to further fuel interest in the hardware sector, benefiting chip makers like SMIC.

At the same time, China’s chip industry is rapidly advancing its chip localization efforts in response to the U.S.’s new restrictions on AI chips, which aim to prevent China from accessing advanced semiconductor technologies. As China’s largest foundry and the country’s leader in advanced fabrication technology, SMIC is well-positioned to capitalize on the push for local chip production.

Despite these positive trends, some analysts, like Daiwa’s Rick Hsu, have expressed caution. Hsu questioned the actual impact of the reallocation of chip orders on SMIC’s business, given that the company primarily produces mature semiconductor nodes rather than the cutting-edge AI chips that are in high demand.