Key Takeaways:
UBS raised SMIC to buy from neutral, lifting its target price to HK$96.2 from HK$76 on China's push to localize AI chip production.
UBS said the market underestimates how much SMIC benefits from China's drive to build domestic AI semiconductors, even as it trimmed its earnings outlook. The bank kept its target price-to-book multiple at 3.3 times and rolled its valuation basis to 2027-2028 average book value per share of $3.7, up from $2.9.
UBS cut its 2026-2028 earnings forecasts by 17 percent to 19 percent to reflect share dilution and lower non-recurring income assumptions, though its estimates still run 20 percent to 30 percent above consensus. The revision partly offsets the higher book value base, the bank said.
The upgrade signals confidence that SMIC, China's largest contract chipmaker, will capture a larger share of domestic AI chip demand as Washington tightens export controls on advanced semiconductors. The foundry competes with Taiwan's TSMC and serves domestic designers including Huawei, which has turned to local fabs for AI accelerators after US restrictions blocked access to Nvidia's most advanced chips.
The move comes as Chinese semiconductor stocks draw renewed interest from global investors betting on domestic substitution, a theme reinforced by Beijing's multi-billion-dollar chip funds and state-backed fab expansion. SMIC's valuation now hinges on whether localization-driven order growth translates into the margin expansion UBS's target implies.
For holders, the upgrade is a bullish signal on China's AI supply chain at a time when the sector faces both export-control risk and policy tailwinds. Investors will watch SMIC's next earnings report for evidence that domestic AI chip orders are lifting utilization and average selling prices.
This article is for informational purposes only and does not constitute investment advice.
