Financial services firm CLSA said it expects the localization rate of domestic AI chips in China to reach 70% by 2030, as a shortage of high-end processors accelerates the nation's push for technological self-sufficiency.
"We are optimistic about the acceleration of the substitution process for domestic AI chipsets," CLSA's report stated, believing this will provide strong growth momentum for the entire semiconductor value chain.
The brokerage estimates the localization rate will climb from 30-40% in 2025 to 60-70% by the end of the decade. It initiated coverage on several key players with "Outperform" ratings, setting a price target of HKD93.3 for SMIC's Hong Kong-listed shares and RMB152 for its Shanghai-listed stock.
The forecast comes as US export controls push Chinese firms to design and manufacture their own semiconductors. This government-backed drive has fueled record growth for domestic equipment makers like Naura and AMEC, even as they face intensifying internal competition.
CLSA's report highlights that while domestic AI chips are currently more suited to inference rather than cutting-edge training scenarios, the persistent shortage of high-end silicon from foreign providers like Nvidia creates a significant market opening. This deficit is forcing Chinese cloud and tech firms to increasingly turn to homegrown alternatives.
The brokerage also assigned an "Outperform" rating to Hua Hong Semiconductor, with a price target of HKD129.5 for its H-shares, alongside positive ratings for JCET Group and GigaDevice.
This substitution trend is a direct response to years of escalating US trade restrictions. While China remains a critical market for US firms like Applied Materials and Lam Research, which earned over 30% of their 2025 sales from the country, direct US chipmaking equipment imports have fallen to an eight-year low, according to a Nikkei Asia analysis.
To circumvent these restrictions, US equipment makers have expanded manufacturing in Southeast Asia, with China's imports from Malaysia and Singapore surging in 2025. However, Washington is seeking to close these loopholes, with proposed legislation like the MATCH Act aiming for stricter multilateral controls with allies like Japan and the Netherlands, home to key suppliers such as Tokyo Electron and ASML.
The push for self-sufficiency is creating a boom for China's domestic chip ecosystem. Top equipment suppliers like Naura, Advanced Micro-Fabrication Equipment (AMEC), and ACM Research all reported record revenue in 2025 as foundries like SMIC and Hua Hong aggressively expand capacity to support domestic AI chip developers.
The CLSA report reinforces the thesis that US sanctions are inadvertently fostering a protected and rapidly growing market for domestic Chinese semiconductor companies. Investors will be closely monitoring the upcoming earnings reports from SMIC and Hua Hong for signs of margin pressure and updates on their capacity expansion plans.
This article is for informational purposes only and does not constitute investment advice.
