BOCOM International has issued a research report stating that SMIC (00981)'s second-quarter results significantly exceeded expectations, with a notable increase in average selling prices. Revenue reached $3.01 billion, growing 20% quarter-on-quarter, well above the upper end of the guidance range of 16% sequential growth. Gross margin came in at 25.3%, up 5.2 percentage points quarter-on-quarter, also surpassing the upper end of guidance at 22%.

Management has guided for third-quarter revenue to continue growing 2-4% sequentially, with gross margin expected to improve to between 26% and 28%. The firm has raised its target price for SMIC to HK$108, citing that the effects of rising average selling prices are beginning to show more clearly. BOCOM International has also lifted its revenue forecasts for 2026, 2027, and 2028 to $11.88 billion, $14.94 billion, and $17.2 billion, respectively, while maintaining a "Buy" rating.

The report highlights that the pull from artificial intelligence is becoming more evident, with pricing power effects starting to emerge in the second quarter and likely extending into the second half of the year. This is seen as the primary driver behind the company's sequentially improving gross margins. Management has pointed out that shipments related to AI-driven computers, tablets, and industrial/automotive segments have risen 40% year-on-year.

BOCOM International believes that SMIC's share price performance since the start of the year has notably lagged behind comparable wafer foundry peers. However, both the direct and indirect demand generated by AI has now been fully transmitted across the company's various business lines, delivering clear benefits to both revenue and gross margins.