SMIC Rallies Amid China Semiconductor Optimism

Key Takeaways

• The share price of Semiconductor Manufacturing International Corporation (SMIC) has climbed over 15% in a week.
• As Chinese technology companies look to reduce their dependency on imported chips, SMIC has been a major beneficiary.
• Amid U.S. trade restrictions, Huawei, Alibaba, and Baidu have increasingly turned to SMIC as an alternative to foreign chip makers.

As they race to develop AI that can compete with leading American models, Chinese startups and technology giants have helped boost demand for locally manufactured semiconductors.

In turn, this has spurred a stock market rally for the Shanghai-based Semiconductor Manufacturing International Corporation (SMIC).

SMIC Stock Market Rally

In the past week, SMIC’s share price has climbed over 15%, with most of the gains coming in a single two-day rally on Thursday and Friday.

The latest surge has made up for previous losses incurred in the wake of Donald Trump’s election, which prompted fears that the Chinese chipmaker could be hurt by an escalating trade war between Beijing and Washington.

In many ways, SMIC’s stock performance in 2024 reflects wider trends in the Chinese market.

Like many other large Chinese technology corporations, the Hong Kong-listed firm was impacted by a wave of negative sentiment in the fall but made a comeback toward the end of the year.

SMIC’s rebound reflects recent optimism that the government may implement more aggressive economic policies to spur domestic demand amid volatile global supply chains.

Closing the Manufacturing Gap

Amid increasingly harsh U.S. trade restrictions, SMIC has invested heavily to narrow the technological gap with industry leaders like Taiwan Semiconductor Manufacturing Company (TSMC).

One of the biggest barriers to SMIC’s manufacturing ambitions is an embargo on the most advanced lithography machines manufactured by ASML.

However, despite lacking access to the same equipment as TSMC, Samsung, and others at the forefront of chip innovation, the Chinese firm has reportedly developed its own 5nm manufacturing process.

Chinese Firms Seek Local Hardware Suppliers

Amid a growing emphasis on self-reliance, Chinese technology firms are increasingly turning to domestic suppliers like SMIC. Companies such as Huawei, Baidu, and Alibaba have highlighted the importance of local sourcing for key hardware components to mitigate risks posed by U.S. sanctions and geopolitical tensions.

Huawei, in particular, has significantly ramped up its collaborations with SMIC, incorporating Chinese-made chips into its flagship smartphones and tapping the firm to produce AI processors that could ultimately help ween it off imported Nvidia chips.

Baidu and Alibaba have followed suit, integrating SMIC-produced components into their servers and AI training systems.