China has been trying to make its own chips for years, but Macquarie believes now is the time to buy. “Given the development of AI in China, domestic large-scale language model (LLM) players, and the token economy, we believe now is the right time to invest in China’s AI chip players,” Macquarie’s China information technology analysts said in a report in late June. “Furthermore, the Chinese government’s support for domestic AI chip companies (partly through import restrictions on NVIDIA GPUs in line with US export controls) has increased the visibility of growth for domestic leaders,” the analysts said, referring to the People’s Republic of China. The United States has allowed some less advanced Nvidia chips to be sold to China, but China has become increasingly reluctant to buy them. Huawei and its Ascend chip have been the focus of most attention in the discussion of AI-enabled semiconductors in China. The company has not indicated any plans to go public. However, other players in the sector are already trading in Hong Kong and mainland China. Macquarie started coverage with five stocks, with Shanghai-listed Cambricon stock being rated as the favorite and outperforming. “We believe Cambricon has shifted its core customer base from government intelligent computing clusters to large domestic cloud providers and LLM developers,” analysts said. “These customers offer a more balanced sales mix, healthy profit margins and solid cash flow.” Macquarie’s price target is 2,060 yuan ($303.43), equivalent to more than 50% of Friday’s closing price. Macquarie prioritizes Viren Tek among Chinese AI chip stocks listed in Hong Kong, with a price target of HK$140 ($17.85), more than double Friday’s closing price. “We like the Biren (general purpose computing on graphics processing unit) product portfolio, which is biased toward higher compute power, chip interconnects, and large compute clusters,” the analysts said. “Additionally, the company’s focus on its domestic supply chain is likely to bear fruit in accelerating new product launches.”Other popular stocks include Hong Kong-listed Iluvatar CoreX, followed by Shanghai-listed MetaX. Mr Macquarie’s least favorite stock in the group is Shanghai-listed Hygon due to concerns about losing market share. “While Hygon is well-positioned in China’s CPU and AI chip space, we attribute much of its success to technology transfer from AMD, and we believe there is limited upside in the space through agent AI development,” Macquarie analysts said. They rate Hygon’s performance as below. Alibaba and Baidu also have subsidiaries that make AI chips. However, Huawei remains a giant in terms of deliveries. The Macquarie report cited IDC as saying that Cambricon ranked second behind Huawei’s Ascend in terms of AI chip shipments last year. According to the report, Hygon was ranked third. —CNBC’s Michael Bloom contributed to this report.
