Chinese chip, cloud stocks soar on AI boom

Shares of Chinese chip and cloud companies have surged in 2025 as investors bet on China’s push for technological self-reliance and government support for homegrown semiconductors.

The SSE Science and Technology Innovation Board 50 Index rose 28% in August, its largest monthly gain on record.

AI chip designer Cambricon Technologies jumped 87% this year, while Semiconductor Manufacturing International Corp.’s Hong Kong shares are up 83% year-to-date.

Beijing has encouraged local firms to use domestic chips and avoid Nvidia’s H20 processors.

Equipment makers like Naura Technology and Advanced Micro-Fabrication Equipment outperformed global peers.

Optical transceiver firms Eoptolink Technology and Zhongji Innolight recorded triple-digit gains.

Cloud companies also rallied, with Alibaba’s Hong Kong-listed shares up 40% from April after reporting a revenue surge linked to AI demand.

Some investors have raised concerns about high valuations, as chip stocks now trade at significant premiums to historical averages.

🔗 Source: Bloomberg

🧠 Food for thought

Implications, context, and why it matters.

China’s chip rally builds on seven decades of strategic government investment

The current surge in Chinese chip stocks represents the latest phase in a systematic approach that began in 1956, when China prioritized semiconductor technology as one of four major national emergency measures2.
China’s progression from producing germanium single crystals in 1957 to establishing major integrated circuit production by 1972 demonstrates the long-term nature of this strategic commitment2.
The “Made in China 2025” initiative set ambitious targets for the semiconductor industry to reach $305 billion in output by 2030, compared to just $65 billion produced in 20163.
A $19.5 billion government fund established in 2014 marked a shift toward more direct state involvement in the semiconductor sector, moving beyond incentive-based policies to direct equity stakes in companies4.
This historical context explains why investors are betting on sustained growth. The current rally isn’t driven by short-term trends but by decades of coordinated industrial policy finally reaching critical mass.

Extreme valuations signal both opportunity and risk in China’s chip market

Chinese chip stocks are trading at unprecedented premiums, with the STAR50 index at 57 times forward earnings compared to its five-year average of 41 times1.
Individual companies like Cambricon are reaching extreme valuations at more than 140 times forward earnings, prompting regulatory scrutiny over potential retail investor losses1.
The timing coincides with explosive global growth in AI chips, projected to expand from $83.80 billion in 2025 to $459 billion by 2032 at a 27.5% annual growth rate5.
However, fund managers are cautioning against chasing current levels, with GAM Investment Management’s Jian Shi Cortesi noting that while China’s semiconductor decoupling “will create great investment opportunities,” he would “await for opportunities to buy at more attractive valuations”1.
The disconnect between current valuations and fundamentals suggests the market may be pricing in perfect execution of China’s semiconductor ambitions, leaving little room for setbacks in what remains a challenging industry.