On Tuesday, September 30th, A-share semiconductor industry chain continued its explosive rally, with Hua Hong Semiconductor surging over 17%, pushing its market capitalization past 200 billion yuan to reach new highs.

Goldman Sachs has raised Hua Hong Semiconductor's target price three times within just half a month and upgraded its rating to "Buy," believing the company is entering an accelerated phase of its growth curve through a "capacity first, efficiency later" strategy.

In its research report on September 29th, Goldman Sachs noted that the company's new 12-inch wafer fab (Fab9) is continuously ramping up, while the company plans to acquire another 12-inch fab (Fab5) and intends to enter the 28-nanometer technology node by 2027. Although depreciation and new fab ramp-up may cause short-term profit volatility, this should be viewed as "capitalized construction period noise." In the long term, Hua Hong's path of capacity expansion combined with technology upgrades will bring sustainable growth and profitability recovery.

According to Goldman Sachs' calculations, Hua Hong's revenue is expected to achieve 18% to 20% compound annual growth from 2026 to 2028, with gross margin centering around 20%.

**Capacity Release: New Fab Ramp-up and Fab5 Acquisition, Clear Scale Expansion**

Hua Hong's growth certainty is first established on its clear capacity expansion blueprint. According to company plans, its 12-inch new fab Fab9 has a designed capacity of 83,000 wafers per month, with current capacity utilization at approximately 50%. Management targets full capacity by mid-2026.

Additionally, the company's planned acquisition of 12-inch wafer fab Fab5, with a capacity of 38,000 wafers per month, will not only enhance the company's order-taking capability in 40/55/65nm process nodes but also effectively reduce internal competition. Looking further ahead, Hua Hong plans to enter 28nm processes through new facilities in 2027, further extending its technology and growth curve.

According to Goldman Sachs' latest forecasts, Hua Hong's revenue will reach $3.22 billion in 2026 and grow to $4.58 billion in 2028. Capacity realization combined with structural transformation enables both volume and unit price to jointly drive revenue growth, forming a positive "invest first, reap later" closed loop.

**Technology Migration and Structural Upgrade: 28/40nm Nodes Drive Gross Margin Flexibility**

Technology evolution and product structure upgrades represent the second main driver for Hua Hong's ASP and gross margin recovery. With Fab9 ramp-up and 28nm new node mass production in 2027, the company is gradually migrating from predominantly 55/65nm to 40nm and 28nm processes. Emerging sectors like AI servers and edge intelligence terminals are increasing demand for mature processes, positioning Hua Hong as a key domestic supplier.

Goldman Sachs' research emphasizes that from Q3 2024 to Q2 2025, the company's capacity utilization remained consistently above 100%, initiating new rounds of price negotiations with customers. ASP is expected to turn positive quarter-over-quarter starting Q3 2025, driving gross margin from 9.2% in 2024 to 12.0% by end-2025, approaching 20% by 2028. Scale effects from structural upgrades, combined with increased domestic equipment adoption rates, are expected to further reduce unit costs and significantly release profit flexibility.

**AI-Driven Demand Growth**

Rapid expansion of the AI industry chain creates lasting incremental space for Hua Hong. AI server GPU thermal design power (TDP) increased from 700W in 2023 to 1400W in 2025, with next generation expected to exceed 2000W, amplifying demand for power management ICs and power semiconductors. Edge AI device applications are increasingly widespread, enabling Bluetooth/WiFi, analog chips, MCU and other sectors, which similarly rely mainly on mature processes.

On the supply side, China's National Integrated Circuit Industry Investment Fund Phase III has a scale of approximately $47 billion, continuing to increase investment in domestic equipment, deposition/testing and other segments. Hua Hong benefits from improved maturity and availability of domestic equipment, shortened industry chain "construction-adoption-mass production" cycles, ensuring expansion pace and yield improvements. Under dual catalysis of AI and localization, Hua Hong's product portfolio and organizational resilience form differentiated competitive moats.

**Earnings Forecast and Valuation Outlook: Synchronized Growth and Valuation Enhancement**

Considering the above factors, Goldman Sachs provides positive predictions for Hua Hong's financial prospects. Under its baseline scenario, Hua Hong's revenue is projected to reach $3.22 billion in 2026 with net profit of $267 million; by 2028, revenue could grow to $4.584 billion with net profit reaching $480 million.

For valuation methodology, the firm uses a model that discounts 2028 expected earnings per share (EPS) to 2026. Based on baseline assumptions of 2028 EPS of $0.280 and 47x price-to-earnings ratio, Hua Hong's fair value range is derived at HK$78-82 per share. Under more aggressive scenarios, its valuation could reach HK$95 per share. As of press time, Hua Hong Semiconductor stock price has risen to HK$80 per share.