Key Points
- Chinese AI chip stocks are soaring as investors bet on the industry’s future.
- The government is reportedly preparing a $70 billion fund to support the sector.
- Despite the hype, Chinese chipmakers face major technological and manufacturing hurdles.
- Key companies are struggling with low production yields and can’t access top-tier equipment due to U.S. sanctions.
Investors are pouring money into Chinese AI chip companies, sending their stock prices skyrocketing. The recent IPO of Moore Threads Technology, whose stock jumped a stunning 425% on its first day, is the latest sign of the market’s excitement. The hope is that a new generation of homegrown companies can challenge American giant Nvidia, at least within China.
A string of promising developments fuels the enthusiasm. Tech giant Huawei recently unveiled a smartphone with an advanced, domestically made processor.
Beijing is also reportedly preparing a massive $70 billion support package to boost its semiconductor industry. This government backing is creating a frenzy around once-unknown names like Moore Threads and Cambricon Technologies, which investors now see as China’s best hope for technological independence.
However, the reality on the ground is much tougher. China’s chipmaking sector faces serious technological bottlenecks that money alone can’t fix. For example, its top manufacturer, SMIC, is on the U.S. blacklist and cannot purchase the advanced equipment it needs.
As a result, its production process is inefficient and costly. Cambricon, another market favorite, has a production yield of only 20%, meaning four out of every five chips it produces are discarded.
The U.S. has also blocked Chinese companies from using the most advanced manufacturing processes at global leader TSMC. This, along with restrictions on high-end memory chips and chipmaking equipment, means China remains years behind the cutting edge. For now, investor hype is far outpacing the industry’s actual capabilities.
