China’s chip stocks test traders’ patience with soaring valuations

China’s chip stocks have staged a world-beating rally in the past few months on the nation’s self-sufficiency push, but some investors are beginning to balk at their lofty valuations.

Cambricon Technologies, dubbed “China’s Nvidia” by retail investors, is trading at an earnings multiple nearly five times that of the more famous AI chip designer. Semiconductor Manufacturing International

and Hua Hong Semiconductor are priced at premiums to major global foundries.

Mirroring the US dynamic, China’s semiconductor

industry is seen as the key beneficiary of a national drive to dominate the tech landscape being shaped by artificial intelligence

(AI). With much talk of an AI bubble of late in the US, China’s even fatter valuations are spurring caution.

“Such high multiples are not leaving much margin for error, and I doubt that the market will have much patience if they cannot deliver,” said Ng Xin-Yao, a fund manager at Aberdeen Investments.

A gauge of Chinese semiconductor shares has surged 55 per cent since the end of June, while measures of chip stocks in the US, Japan, South Korea and Taiwan are up around 20 to 30 per cent. The outperformance has come on Beijing’s support for domestic tech and a plea for firms to avoid using Nvidia processors.