Goldman Sachs: Maintaining SMIC's (00981) “Buy” rating target price of HK$153, optimistic about AI-driven growth in the second half of the year

The Zhitong Finance App learned that Goldman Sachs released a research report stating that it maintains the SMIC (00981) “buy” rating and that the target price for H shares for 12 months is HK$153. The bank is optimistic about SMIC. It is expected that revenue for the third and fourth quarters of 2026 will remain high in the second quarter of 2026, driving revenue growth of 12% month-on-month and 27% year-on-year growth in the second half of 2026, mainly due to China's generative AI growth trend supporting mature processes and advanced nodes, rising localization trends, and continued expansion of the company's production capacity.

Goldman Sachs's main views are as follows:

Generative AI will drive future growth

Goldman Sachs said that under an optimistic, basic and pessimistic scenario, the total potential market for AI chips in China is expected to grow at a compound annual rate of 142%, 69% and 6% respectively from 2025 to 2030, reaching US$4123 billion, US$67.8 billion and US$66 billion by 2030, respectively. To achieve the basic scenario, SMIC would need to allocate 54% to 71% of its capital expenditure to 7nm and more advanced processes. The bank also anticipates that the capital expenditure of China's leading cloud platforms will increase by 80%, 20%, and 18%, respectively, from 2026-2028, and will increase the forecast by 37%, 44% and 55%, respectively, for the same period.

In addition to China's demand for AI chips driving advanced nodes, Goldman Sachs believes that mature manufacturing processes are also supported by relevant AI requirements, including analog ICs and power semiconductors. The production capacity of global first-line peers is occupied by AI and leading process nodes, and it also provides opportunities for Chinese wafer foundries to meet non-AI requirements or mature processes.

The month-on-month revenue growth rate in the second quarter of 2026 was the strongest among the top ten global foundry

According to TrendForce data, in terms of revenue, SMIC still ranked among the top three global foundry companies in the second quarter of 2026, with revenue growth of 20% month-on-month, higher than the 11.5% overall month-on-month growth rate of the world's top ten foundry companies, and the company with the strongest month-on-month revenue growth among the top ten in the world. Goldman Sachs believes this reflects the strong demand for AI in China and the diversification of suppliers by customers to better guarantee production capacity.

Promising outlook for the second half of 2026

Goldman Sachs expects SMIC's revenue for the third and fourth quarters of 2026 to remain high in the second quarter, and the capacity utilization rate will remain above 95% in the second half of 2026. New pricing for wafers completed in the fourth quarter of 2025 and the first quarter of 2026 is expected to take effect in the third quarter of 2026, thus supporting gross profit margins even as depreciation rises. As production capacity for AI-related computing, logic, BCD and optical module related chips continues to be tight, the bank expects average sales prices to be less likely to decline in the second half of 2026, and continues to be optimistic about support from high utilization, improved pricing, and continued demand for AI-related applications.

Valuation and risk

Goldman Sachs gave SMIC H shares a 12-month target price of HK$153, based on a projected price-earnings ratio of 80.7 times 2028, and discounted to 2026 at 15% equity costs. The target valuation multiplier is based on the correlation between SMIC's earnings per share growth rate compared to the price-earnings ratio of the same industry and the growth rate of earnings per share.

Key risks include weaker-than-expected demand for smartphones and consumer electronics, slower than expected product diversification and capacity expansion, and possible restrictions on the supply of some equipment and materials due to the company's inclusion in the US Department of Commerce's Bureau of Industry and Security Entities List.