JP Morgan released a research report maintaining a "neutral" rating on SMIC (00981), while raising its target price from HK$67 to HK$78.

JP Morgan noted that SMIC's second-quarter gross margin came in at 25.3%, exceeding both the firm's and market expectations by 3.6 to 4 percentage points. The third-quarter gross margin guidance of 26% to 28% also significantly surpassed the market's estimated 22% or so. The primary driver is strong demand related to artificial intelligence, which has led to supply tightness and supported price increases.

The bank believes that these price hikes represent a sustainable catalyst for revenue and gross margins in the coming quarters. However, further upside potential may be limited by higher depreciation costs. Depreciation is expected to grow by approximately 30% and 20% year-on-year in 2026 and 2027, respectively, outpacing revenue growth of 27% and 16%.

JP Morgan views a recovery in consumer demand, leading to stronger and broader price increases, or improved yield rates driving more robust growth in advanced nodes, as potential upside risks for the stock price.