China semiconductor profits surge 602% as AI demand fuels capacity crunch

China's semiconductor materials profits surged 602% in the first four months of 2026, official data show, as AI-driven demand pushed foundry utilization rates to record highs and created bottlenecks across advanced packaging and high-bandwidth memory.

"This is not a low-base statistical recovery — it's a real order-driven expansion cycle," Wang Yun, head of investment operations at JIC Investment, said. "Foundries are near full capacity, storage makers are above 95% utilization, and equipment orders are at multi-year highs."

The National Bureau of Statistics data showed fiber optics profits rose 348% and industrial control computer profits — a proxy for robotics demand — gained 129% in the same period. At least a dozen companies on the Sci50 index posted first-quarter revenue or net profit growth exceeding 100%, with some reporting multiples. Li Xingquan, a researcher at Guotai Asset Management, attributed the surge to storage chip price increases, sustained AI GPU volume, and what he called "AI inflation" — the spillover effect of AI demand into mature-node manufacturing.

The capacity crunch is most acute in products with high technical barriers: HBM (high-bandwidth memory), CoWoS (chip-on-wafer-on-substrate) advanced packaging, 2.5D/3D packaging solutions, EML high-speed optical chips, and high-end MLCCs (multi-layer ceramic capacitors). Customers are proactively seeking to lock in capacity with prepayments — a dynamic that gives Chinese chipmakers pricing power they have not historically possessed.

The supply-demand imbalance has created an unusual dynamic in China's primary fundraising market. Projects tied to AI infrastructure, optical communications, and advanced packaging are raising capital faster and at higher valuations, with some completing multiple rounds within a single year.

"Previously, I could easily introduce other investors to a project. Now I can't even schedule a meeting with the company's executives," one primary market investor who tracks semiconductor deals said on condition of anonymity. "Projects with strong order books don't lack for investors. They're deliberately limiting dilution because they expect the next round to command an even higher valuation."

The investor said some companies are closing rounds after talking to just three to five firms — skipping the traditional broad roadshow — because they want to avoid excessive equity dilution ahead of a potential IPO.

Capacity Constraints Extend Beyond Chips to Robotics

The semiconductor boom is rippling into adjacent industries. Industrial control computers — the "brains" of robots — saw profits rise 129% in the January-April period, while test equipment manufacturing gained 59%.

Zhang Qi, vice president at Oymotion, a maker of dexterous hands and brain-computer interface products, said the company's first-quarter revenue rose roughly threefold year over year, driven entirely by shipment volume. "Our dexterous hand products are used both as robot end-effectors and as data-collection tools for embodied AI training," Zhang said. "Key customers have scaled from dozens of units per order to hundreds."

Xie Kaixuan, marketing director at collaborative robot maker Dobot, said demand is strongest in two areas: high-end manufacturing automation (precision assembly, inspection, intelligent welding) and commercial service unmanned operations (unattended coffee shops, massage therapy). Dobot has deployed more than 100,000 robots across 100-plus countries and ranked first globally in collaborative robot shipments in 2025, Xie said.

Sustainability Question Hangs Over the Cycle

Li Xingquan said the profit growth has strong medium-to-long-term sustainability, driven by the continued AI boom and China's push for domestic computing capacity. "As large-model commercial deployment and 'sovereign AI' construction advance, the massive and determined domestic computing infrastructure investment will resonate with the global AI expansion cycle," he said.

But robotics profitability may face more volatility. "Humanoid robots are still in the zero-to-one phase," Li said. "Overseas hasn't scaled yet, and domestic applications are mostly in commercial performances and research scenarios. As mass production approaches and costs need to come down, profit margins may fluctuate."

Wang Yun noted that the structural shift in demand is giving Chinese chipmakers something they have long lacked: pricing power. "Automotive-grade chips have high certification barriers — once you're in the supply chain, customer stickiness is strong," she said. "AI server and data center customers care more about extreme performance and reliability than price, giving leading companies significant pricing leverage."

The Investment Takeaway

For investors, the data confirms that China's semiconductor upcycle is demand-driven rather than inventory-driven — a distinction that matters for sustainability. The bottleneck products (HBM, advanced packaging, high-end MLCCs) are precisely those where domestic substitution is still in early stages, suggesting multiyear growth runway. However, the frothy primary market and companies' reluctance to raise capital at current valuations signal that public market pricing may not yet fully reflect the cycle's intensity.

This article is for informational purposes only and does not constitute investment advice.