SMIC boosts 2026 outlook on strong AI chip demand

A surge in artificial intelligence-related business is prompting China’s largest chipmaker to raise its outlook for the year, a sign of how AI is reshaping semiconductor supply and demand dynamics globally. Semiconductor Manufacturing International Corp. is now more optimistic about its overall operations for 2026 than it was a quarter ago, citing robust orders for the power management chips used in AI servers and a broader demand shift.

“Based on client demand and our order book, we are more optimistic about our overall operations for the year compared to the last quarter,” co-CEO Zhao Haijun said during the company’s first-quarter earnings briefing on May 15, 2026.

Zhao detailed five key reasons for the upgraded forecast. The primary driver is overwhelming demand for high-end power management chips, fueled directly by the global build-out of AI infrastructure. He also noted an order backflow into mainland China as overseas AI demand creates a “siphon effect,” tightening capacity abroad and pushing customers like consumer and IoT firms to secure domestic production. New AI-driven applications in time-of-flight sensors, electric vehicles, and robotics are also contributing, alongside a national push for supply chain localization that is boosting domestic logic and networking chip orders.

The improved forecast from a key indicator of China’s domestic chip industry comes as the global semiconductor market shows signs of a broader recovery. Market research firm IDC projects semiconductor sales will grow by 20 percent this year, driven by a rebound in consumer electronics and sustained demand for AI-powering chips. SMIC’s commentary suggests it is a direct beneficiary of these intersecting trends, capturing both high-end AI demand and a broader shift toward supply chain resilience.

AI Siphon Effect and Domestic Substitution

The “siphon effect” described by Zhao highlights a key dynamic in the current market. As global tech giants race to build AI capabilities, they are absorbing a massive share of the world’s advanced semiconductor capacity. This creates an opening for foundries like SMIC to capture business from clients in non-leading-edge sectors who are finding it harder to secure capacity at larger overseas rivals. This trend is happening alongside a concerted government-backed push for domestic substitution within China, creating a powerful twin-engine for local demand.

This dynamic is also reflected in the talent market. Demand for experienced integrated circuit engineers in China is on the rise, with recruiters offering average annual salaries over 300,000 yuan ($41,800) to fill a growing gap, according to a March report in China Daily. The report cited analysts from Gartner who noted that as the market warms up, large-scale recruitment should fare better than last year.

Automotive Chips Provide Long-Term Demand

Beyond the immediate AI surge, the growing complexity of automobiles represents a significant long-term demand driver. According to electronic components distributor DRex Electronics, an average modern car contains between 1,400 and 1,500 semiconductor chips, with some advanced models using as many as 3,000. Chinese semiconductor market research company JW Insights forecasts that China's share of the automotive chip industry will reach 30 percent of the global market by 2030.

Chips for advanced driver assistance systems (ADAS) and in-car infotainment are the two largest consumption drivers, projected by IDC to account for 30 percent and 20 percent of all auto chips by 2027, respectively. This structural demand provides a steady, long-term growth runway for foundries that can meet the automotive industry’s stringent quality and reliability standards.

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