Shenwan Hongyuan Group Co., Ltd. released a research report stating that China's machine tool industry is expected to enter a new upward cycle in 2026, with demand poised for a comprehensive recovery. The performance growth of listed companies in the machine tool sector generally turned positive in Q1 2026. AI computing power construction is driving a significant increase in demand for liquid-cooled servers, contributing important incremental growth from high-demand segments such as liquid cooling and 3C electronics. Machine tool orders serve as a leading indicator, with overall orders and performance in the general machinery sector having clear room for recovery. The main views of Shenwan Hongyuan Group Co., Ltd. are as follows:
The cyclical turning point for the machine tool industry has been established, with demand expected to see a comprehensive recovery in 2026. After previous fluctuations and adjustments, China's machine tool industry is entering a new upward cycle in 2026. According to Ruigongye data, both the market size and sales volume of CNC metal-cutting machine tools achieved double-digit growth in Q1 2026, with demand from downstream industries such as automotive, electronics, aerospace, and general machinery fully recovering. Simultaneously, the significantly extended delivery times for upstream core components also confirm the high demand in the machine tool industry. In terms of performance, the earnings growth of listed companies in the machine tool sector generally turned positive in Q1 2026.
High-growth segments like liquid cooling and 3C electronics contribute significant incremental demand. AI computing power construction is driving strong demand for liquid-cooled servers, boosting demand for machine types such as drilling and tapping machines, vertical machining centers, Swiss-type lathes, and turning-milling centers, driven by precision structural components like cold plates, UQD quick connectors, and water distributors. Furthermore, upstream components in the liquid cooling industry chain are characterized by high gross margins. The consumer electronics sector is being boosted by the iteration of AI phones, foldable screens, and replacement policies, leading to sustained increases in demand for small, high-precision drilling and tapping machines and engraving machines. The lightweighting of new energy vehicles and demand for precision machining of components are driving batch purchases of vertical machining centers, horizontal machining centers, and five-axis machine tools. The impending industrialization of humanoid robots is creating opportunities for domestic substitution in small and large-travel five-axis machine tools for processing irregular precision components.
Machine tool orders serve as a leading indicator, driving synchronous recovery in the general machinery sector. As the mother of industry, the prosperity of machine tool orders can foreshadow downstream capital expenditure intentions. The recovery in demand positively transmits to components such as CNC systems and simultaneously indicates demand in areas like cutting tools, forklifts, injection molding machines, and industrial robots. Overall orders and performance in the general machinery sector have clear room for recovery.
Key focus areas include: 1) Equipment manufacturers benefiting from downstream high-growth segments like liquid cooling and 3C electronics: Qiaofeng Intelligent, Jinshang Machine Tool China, and Zhejiang Headman; 2) Equipment manufacturers experiencing a performance inflection point due to the general recovery: Neway CNC, Haitian Precision, Guosheng Intelligent Equipment, and Qinchuan Machine Tool; 3) High demand growth for machine tools will also drive demand for related functional components, with a positive outlook on the domestic substitution process: Huazhong CNC (CNC systems), Hengli Hydraulic, and Heng'Erda (lead screw guides); 4) In the high-end precision machining field, a positive outlook on domestic substitution for five-axis machine tools: Kede CNC, Haomai Technology, Tuosda, and Tuopu CNC.
Risk warnings: Risks associated with macroeconomic fluctuations, intensifying industry competition, and downstream demand falling short of expectations.