Chinese semiconductor equipment suppliers are experiencing structural opportunities. Despite domestic semiconductor companies' stock prices hitting four-year highs recently, Oliver Cox, Asia-Pacific equity fund manager at JPMorgan Asset Management, remains optimistic about the upstream equipment sector.
The fund manager, who oversees $2.1 billion in assets, points out that Chinese semiconductor equipment manufacturers possess the "shovel seller" advantage - regardless of how the competitive landscape among downstream chip manufacturers changes, equipment demand will continue to benefit from the industry upgrade wave. His fund's performance this year has outperformed 95% of peers, validating this judgment.
Market data shows that the SSE STAR Market 50 Index (Star50), which focuses on domestic chip companies, surged 28% in August, continuing to reach new historical highs. This surge resonates with regulatory guidance, as Chinese authorities recently explicitly required companies to reduce dependence on NVIDIA H20 chips, further catalyzing the domestic substitution process.
However, high valuation concerns have emerged. The index currently trades at 62 times earnings (based on next twelve months expected earnings), 50% higher than its five-year average, while the Philadelphia Semiconductor Index in the US trades at only 24 times earnings during the same period.
"We remain cautious about listed companies directly engaged in chip production, as their valuations have fully reflected expectations and they need to face realistic issues such as demand sustainability and capacity target achievement," Cox said, citing Cambricon Technologies (688256.SH) as an example. This company's stock price has doubled since December last year, with a P/E ratio exceeding 200 times, briefly becoming the most expensive stock on A-shares last week.
Cambricon Technologies' stock price surged 10% last Wednesday, touching 1,465 yuan (approximately $204.62), briefly surpassing Kweichow Moutai to become the most expensive A-share stock during intraday trading. Although it eventually pulled back, this highlighted the profound shift in market capital flows. This artificial intelligence semiconductor company, founded in 2016, has accumulated nearly 120% gains this year, with its rise reflecting Chinese investors' accelerated rotation from consumer stocks to technology stocks.
In contrast, Cox focuses more on the equipment supplier sector. Another fund he manages holds shares of NAURA Technology Group (002371.SZ) - this Beijing-based company's stock price has risen 30% this year, while Advanced Micro-Fabrication Equipment gained 18% over the same period.
In the artificial intelligence field, Cox emphasizes the need to distinguish between capital expenditure beneficiaries and AI application deployers. He points out that Chinese cloud computing service providers invested approximately $50 billion this year, only one-sixth of the $330 billion scale of the top four US hyperscale manufacturers, indicating significant room for capital expenditure improvement.
Although the development stage lags behind the US by several years, the launch of new models by companies like DeepSeek is viewed as a positive signal, indicating sustainable profit growth potential.
Regarding US-China technology competition, Cox believes both sides may reach a "compromise solution" - China may continue purchasing older versions of NVIDIA chips while firmly advancing semiconductor self-sufficiency goals. This dynamic balance both preserves market space for international equipment manufacturers and continuously drives technical iteration demand for domestic equipment suppliers.
Against the backdrop of intertwined industrial upgrading and geopolitical competition, the "shovel seller" logic in the equipment sector is becoming a key tool for institutional investors to capture structural opportunities.