Key Takeaways:
- BOCOM raised SMIC's target to HK$108, keeping a Buy rating after a Q2 beat.
- Q2 revenue hit $3.01 billion, up 20 percent sequentially, beating guidance.
- AI-related shipments rose 40 percent; Q3 gross margin guided to 26-28 percent.
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BOCOM raises SMIC target to HK$108 on AI-driven Q2 beat
BOCOM International lifted its SMIC price target to HK$108, keeping a Buy rating after the chipmaker's Q2 revenue beat guidance by 4 percentage points.
"Demand for AI-capable chips rose about 40 percent based on current chip demand trends," Co-CEO Zhao Haijun said.
SMIC reported Q2 revenue of $3.01 billion, up 20 percent sequentially against a guidance ceiling of 16 percent, with gross margin of 25.3 percent, 5.2 percentage points above the 22 percent top of guidance. Net profit came in at $479.2 million. Management guides Q3 revenue up 2-4 percent sequentially with gross margin expanding to 26-28 percent. BOCOM lifted its 2026, 2027 and 2028 revenue forecasts to $11.88 billion, $14.94 billion and $17.2 billion, citing average selling prices that began rising in the second quarter and are expected to extend into the second half.
The upgrade comes as SMIC's shares have lagged comparable wafer foundries since the start of the year even as AI-driven demand flows through its business. AI-related computer and tablet plus industrial and automotive shipments rose 40 percent year over year, and the price-increase effect is the main driver of sequentially improving gross margin.
The capacity buildout carries a cost. SMIC guides 2026 depreciation up about 30 percent, the main drag on results, though management expects higher utilization and an improving product mix to partly offset the impact.
SMIC, China's largest contract chipmaker, has trailed peers such as Taiwan's TSMC this year even as AI demand flows through its business. BOCOM argues the direct and indirect demand from AI has now fully transmitted into each of SMIC's segments, benefiting both revenue and gross margin. The bank's higher revenue forecasts assume the ASP uplift that emerged in the second quarter continues through the second half.
The target raise shows BOCOM expects AI demand and pricing power to keep lifting SMIC's margins through the second half. A Q3 gross margin of 26-28 percent, if delivered, would mark a third straight quarter of sequential improvement. Investors will watch whether that guide holds as 2026 depreciation pressures results.
This article is for informational purposes only and does not constitute investment advice.
