Citigroup has issued a research report commenting on media reports indicating the Chinese government plans to invest approximately 2 trillion yuan over the next five years to build a national network of data centers supporting the domestic artificial intelligence industry. Domestic telecommunications operators are expected to operate these centers and utilize at least 80% locally produced AI accelerators.

The firm views this new initiative as beneficial for several key industry players. This includes wafer foundries such as SMIC (HKG: 00981) and HUA HONG SEMI (HKG: 01347); packaging and testing providers Jcet Group Co.,Ltd. (SHA: 600584) and Tongfu Microelectronics Co.,Ltd. (SHE: 002156); equipment suppliers ASMPT (HKG: 00522) and Xian Dao Ji Dian (SHA: 600641); as well as domestic AI accelerator vendors. The report states this provides a clearer roadmap for AI localization in China.

Citigroup believes the target of over 80% localization for AI chips should be achievable. This assessment is based on domestic AI chip manufacturers having already captured the vast majority of the Chinese AI accelerator market share this year, coupled with a near halt in imports of NVIDIA's (NYSE: NVDA) H200 processors.

The report also suggests this policy could be more favorable for small and medium-sized domestic AI chip companies. State-backed data centers are anticipated to be more willing to procure from a broader range of suppliers.