Morgan Stanley has released a report stating that SMIC (00981) is a key player supporting the domestic Chinese artificial intelligence graphics processing unit (GPU) supply chain. With capacity utilization remaining high and average selling prices rising, the firm believes the company can absorb the additional depreciation from ongoing capacity expansion. Morgan Stanley maintains an "Overweight" rating on SMIC with a target price of HK$70.

SMIC's first-quarter revenue reached $2.51 billion, a sequential increase of 1% and a year-on-year rise of 11%, aligning with both Morgan Stanley's and market expectations. This growth was primarily driven by an increase in the blended average selling price. The gross margin for the period was 20.1%, up 0.9 percentage points sequentially, surpassing the firm's and market forecasts. However, attributable net profit was $197 million, a 14% sequential increase, but fell below expectations due to reduced government subsidies in the first quarter.

The report highlighted that SMIC has provided a strong guidance for the second quarter, anticipating a sequential revenue growth of 14% to 16%. This is expected to be driven by an approximately 10% increase in shipment volume and a roughly 5% rise in prices. The gross margin guidance for the second quarter is set between 20% and 22%, representing a sequential improvement of 0.9 percentage points at the midpoint.