Semiconductor Manufacturing International Corp. (SMIC) rallied on the Hong Kong market, with the stock advancing nearly 5.9% to HK$75.90 as investors reacted to renewed optimism about domestic AI chip production.
Sentiment across Chinese chipmakers strengthened after reports that ByteDance is in talks with Shanghai Iluvatar CoreX to buy AI chips intended for inference workloads. The reports also noted ByteDance was considering a separate arrangement with Baidu. Following the news, Iluvatar's shares climbed by almost 4%.
As China’s largest foundry by scale, SMIC is viewed as a potential beneficiary of any expansion in domestic chip manufacturing tied to AI development. Market commentary points to a broader dynamic: the global surge in AI-related demand is prompting some overseas manufacturers to concentrate on higher-margin AI chips and high-bandwidth memory. That realignment has, in turn, created shortages in mature-node semiconductors that are in demand for other AI-related equipment.
Analysts and market participants referenced in the reports expect that the combination of intensifying AI-driven demand and upward price pressure for relevant chips could materially elevate SMIC’s second-quarter revenue. In addition, SMIC's positioning within China’s effort to bolster semiconductor self-sufficiency has been reinforced in investor assessments, with recent changes in chip design strategy at a major domestic customer - Huawei - cited as an additional factor underpinning confidence in local foundries.
While the immediate market reaction was positive for SMIC and peer chipmakers, the move largely reflects expectations tied to potential domestic production deals and shifting global supply patterns rather than confirmed long-term contracts. The recent stock moves occurred alongside broader gains in the Chinese chipmaking sector.
Key points
- SMIC's Hong Kong-listed shares climbed about 5.9% to HK$75.90 amid optimism for increased domestic AI chip production.
- Reports that ByteDance is negotiating with Shanghai Iluvatar CoreX for inference chips - and is also considering a tie-up with Baidu - boosted sentiment across chipmakers; Iluvatar shares rose nearly 4%.
- The global AI boom and a shift by foreign rivals toward high-margin AI chips and high-bandwidth memory are redirecting orders to Chinese foundries and contributing to shortages in mature-node semiconductors, factors that may support SMIC's near-term revenue.
Sectors and markets affected
- Semiconductor manufacturing and foundries - direct beneficiaries if domestic procurement expands.
- AI chip developers and suppliers - demand patterns and supply allocations are influencing production locations.
- Equity markets for Chinese chipmakers - investor sentiment is sensitive to reports of domestic AI procurement and design strategy changes by major customers.
Risks and uncertainties
- Uncertainty over whether reported procurement talks will result in concrete, large-scale domestic production agreements affecting SMIC - outcomes of discussions are not confirmed in the reports.
- Ongoing industry shifts by overseas rivals toward high-margin AI chips and high-bandwidth memory have created a shortage in mature-node semiconductors, a current supply constraint that affects companies and sectors reliant on those nodes.
- Expectations that AI-driven demand and higher prices will substantially lift SMIC’s Q2 revenue depend on continued strength in demand and realized pricing trends reflected in market commentary, which are forward-looking assessments rather than guaranteed results.
Conclusion
SMIC’s recent share-price advance mirrors growing investor optimism that domestic demand for AI inference chips could channel more orders to Chinese foundries. Reports of discussions between a major AI developer and local chipmakers, combined with shifts in global production priorities, have contributed to a more favorable view of SMIC’s near-term revenue prospects. However, the market reaction is tied to expectations around potential deals and evolving supply dynamics rather than to confirmed long-term contracts.