One of the few tangible takeaways from China’s big policy meeting last week is that Beijing is intent on building up domestic tech. From an investment perspective, Goldman Sachs analysts on July 15 pointed out there are notable catalysts for certain semiconductor and artificial intelligence China stock plays from August to December. Those include new Chinese smartphones, AI PCs and a new iPhone cycle heading into the holidays. Among mainland Chinese stocks, semiconductor names saw the biggest inflows last week, and some of the biggest gains on Friday, according to financial database Wind Information. That’s after major stock indexes in China closed only mildly higher on Friday. They had traded lower in the morning before a press conference about China’s policy meeting, called the Third Plenum. Officials told reporters about plans to speed up “emerging and future industries,” and expand the development of tech talent in China. Friday’s IT outages also reminded many people in China about the benefits of not being so globally integrated. On China’s social media platform Weibo, disruptions to Microsoft users briefly became the second most-popular hashtag in the afternoon, before giving way that evening to new topics such as Xiaomi’s live-streamed product launch in Beijing. In contrast, the top trending item on X on Friday night in Beijing was CrowdStrike . Adding to China’s growing focus on self-sufficiency are U.S. restrictions on Nvidia’s exports to China in the last two years, and a report last week that the Biden administration is considering a wider clampdown on the export of advanced chipmaking equipment to China. Shares of ASML , Nvidia and Taiwan Semiconductor have all declined since the report. NVDA 2330-TW,ASML mountain 2024-07-17 NVDA, ASML and TSMC since July 17 Goldman analysts said they are “positive” on Chinese semiconductor production equipment stocks because they expect “demand growth driven by continued expansion of China’s mature node capacity.” “In the SPE space, we prefer platform solution providers that have leading technologies among local peers and devoted to expanding product portfolio to capture a larger share of growth,” the report said. Ways to play the space The bank has buy ratings on at least two Chinese companies in the industry. One is U.S.-listed ACM Research , which the analysts expect has upside of about 90% to a price target of $39 a share. The other is Shanghai-listed AccoTest, which is part of Beijing HuaFeng Test and Control, Ltd. The analysts have a price target of 135 yuan a share, implying about 35% upside from Friday’s close. The Goldman analysts are also optimistic about growth for Chinese fabless companies, the businesses which design chips but outsource the manufacturing process. “We expect China fabless companies’ revenues to increase 8%-64% [quarter over quarter] in 3Q24E supported by better seasonality of consumer electronics and a gradual demand recovery after inventory digestion across markets,” Goldman said. “We prefer market share gainers and companies focused on mature nodes that come with less geopolitical risks,” they said. Two of their buy-rated picks that are listed in Shanghai are Montage — primed to rally 27% from Friday’s close — and Will Semiconductor — which has upside of 19%. Montage generates nearly all of its revenue from servers, while Will Semiconductor draws about half of its revenue from smartphones, and one-third from automobiles, according to the Goldman report.
