SMIC Stock Skyrockets 120% as China Accelerates Semiconductor Self-Reliance Amid Trade War

Based in Shanghai, Semiconductor Manufacturing International Corp. (SMIC) ranks as the world’s second-largest dedicated independent foundry, trailing only behind TSMC. Recently, SMIC’s stock has seen a significant surge, with its value doubling over the past two months. According to Bloomberg, this rise is driven by China’s initiative toward self-sufficiency in semiconductors. With U.S. sanctions complicating the procurement of chips containing Western components for Chinese firms, companies like SMIC are becoming increasingly vital domestically. Additionally, China’s hefty investments in its semiconductor sector are proving beneficial for SMIC.

Nevertheless, despite the growth of its semiconductor manufacturing sector, China remains behind the West in the production of advanced chips and AI technology, largely due to restrictions imposed by the U.S. For instance, Chinese companies are barred from accessing the latest High-NA EUV machines from ASML, which are essential for developing the nodes needed for futuristic processors. Although SMIC has shifted its focus toward producing legacy chips for industrial and automotive uses—a strategy recommended by a leading figure in the Chinese chip industry—some analysts predict that competition in this area could intensify next year. Other domestic chip manufacturers and even TSMC might reduce their prices, potentially making their products more appealing and diminishing SMIC’s competitive edge.

In contrast to the growth seen by Nvidia, driven by robust sales of AI processors, the increase in SMIC’s stock price is often viewed as speculative, hinging on anticipated developments rather than current achievements. This speculative nature suggests potential volatility in SMIC’s stock, particularly if the reality doesn’t meet market expectations.

Consequently, some market analysts believe that SMIC’s stock might be overvalued. They recognize the local demand for SMIC’s offerings and acknowledge the company’s potential to remain profitable. However, they also highlight the competitive pressures from other foundries, both within China and globally. A portion of SMIC’s revenue stems from the financial incentives and investments from Beijing aimed at boosting the domestic semiconductor industry. While this support has bolstered SMIC’s financial results, experts caution that the market might be overly optimistic about the long-term benefits of these government subsidies.

Despite these caveats, the recent upswing in SMIC’s market value underscores the growing demand for chips in China. If SMIC can sustain this upward trajectory, it has the potential to become a significant force in the chip manufacturing industry—not necessarily in pioneering technology, but through sheer production volume.