[HONG KONG] Chinese chipmakers are trading at a four-year high versus their US peers, but a top fund manager still sees pockets of opportunity among their equipment suppliers.
“These companies tend to be customer-agnostic, hence should be able to sustain growth and supply ‘picks and shovels to the gold rush’ regardless of which China semiconductor producers end up emerging as leaders,” said Oliver Cox, the manager of the US$2.1 billion Asia-Pacific Equity Fund at JPMorgan Asset Management in Hong Kong.
His fund has outperformed 95 per cent of its peers this year, data compiled by Bloomberg showed.
The SSE Science and Technology Innovation Board 50 Index, a gauge heavy on onshore chipmakers, soared by a record 28 per cent in August, extending gains after Chinese authorities urged local firms to avoid using Nvidia’s H20 processors.
The index that’s better known as Star50 now trades at 62 times earnings estimated over the next year, 50 per cent above its five-year average and compared with 24 times for the Philadelphia Semiconductor Index in the US.
“Valuations have kept us on the sidelines for listed China upstream semi producers – they have performed well but are all trading on relatively high valuations,” said Cox, referring to the companies more focused on the actual chip production. “Concerns about the sustainability of economics remain: Will demand continue? Can they maintain production goals?”
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Cambricon Technologies, whose shares have more than doubled since December and trade at more than 200 times profits for the next year, even briefly became the priciest of all onshore stocks last week.
While Cox is not allowed to name the specific companies he’s bullish on, another of his funds holds Beijing-based Naura Technology Group, the producer of a suite of tools across the chip-manufacturing process whose shares have climbed 30 per cent this year. Peer Advanced Micro-Fabrication Equipment has gained 18 per cent in the period.
When it comes to artificial intelligence (AI), Cox said it’s important to distinguish between companies that benefit from the industry’s capital expenditure and those that deploy AI-powered products and services.
He noted that capex for the sector remains modest in China compared with the US, where the top four hyperscalers are expected to spend more than US$330 billion in overall investments this year, data compiled by Bloomberg showed.
That compares with around US$50 billion for China’s leaders, he said, adding that implies they are several years behind the US and earnings growth will continue. He pointed out that new model releases from firms such as DeepSeek are encouraging signs.
And as for the rivalry between the US and China, Cox said the nations will probably come to a “middle-ground solution” where an older version of Nvidia chips is sold in the world’s second-largest economy. China’s goal of boosting domestic self-sufficiency in semiconductor production will remain, he added. BLOOMBERG
