China Semiconductor Sector

Research evidence excerpt

China Semiconductor Sector

Macquarie Equity Research China Semiconductor Sector

Investment summary

A burgeoning time for Chinese AI chip firms. We believe the best time to invest in China’s

AI chip players has arrived, given the development of AI, domestic large language model

(LLM) players, and the token economy in China. In addition, the PRC Government’s support

on domestic AI chip firms (partially via import restriction of NVIDIA GPUs which echoes

with US export controls) has lifted the growth visibility of domestic leaders. According to

Frost & Sullivan, the domestic market size is expected to post a 56% CAGR over 2025-28,

exceeding Rmb900bn by 2028. This robust demand can also be reflected by domestic

hyperscalers’ capex momentum, as Macquarie Analyst Ellie Jiang forecasts major China-

based hyperscalers will incur a 51% CAGR in combined capex to Rmb1.2tn in 2028E.

GPU and ASIC architectures coexist. Consistent with global trends, we believe both GPU

and ASIC architectures will thrive in China. Domestic players are focused on closing the

computational power gap, while China’s broad range of training and inference demand

should leave sufficient room for both GPGPUs, which stand out for their compatibility with

NVIDIA’s CUDA ecosystem, and ASICs, which offer high efficiency for specific AI model

versions, particularly given the close cooperation in China between LLM players and chip

developers.

Product spec still lags… In our proprietary analysis on chip specs, we highlight that

products from domestic firms generally have computing power (based on FP16) similar

to the NVIDIA A100 GPU, though still much lower than H100. Chinese firms' HBM DRAM

also have meaningful performance gaps with NVIDIA H100. Hence, we acknowledge more