Goldman Sachs raises SMIC's H-share target price by 15%, expecting domestic demand to support production and average selling price

Goldman Sachs raised the target price for SMIC's Hong Kong H-shares by 15%, optimistic about its long-term growth prospects driven by the trend of artificial intelligence and domestic IC design demand.

Recently, Goldman Sachs significantly raised the 12-month target price for SMIC's Hong Kong H-shares by 15% to HKD 73.1, maintaining a buy rating on the stock. At the same time, considering the valuation premium between A-shares and H-shares, the target price for A-shares remains unchanged at RMB 160.1.

Analysts Allen Chang and others stated that they maintain their earnings forecasts for SMIC from 2025 to 2027, while raising revenue and earnings per share forecasts for 2028 and 2029. Specifically, the earnings per share forecasts for 2028 and 2029 were raised by 3% and 7%, respectively, while revenue forecasts were raised by 0.4% and 2%.

Analysts pointed out that driven by Chinese IC design companies and the trend of artificial intelligence, SMIC's long-term growth is expected to be stronger, which will support its output and average selling price. The firm believes that the continuous growth of domestic integrated circuit design demand will bring more order opportunities for SMIC.

Short-term Catalysts Expected

Looking ahead to short-term performance, Goldman Sachs expects that the revenue guidance for the third quarter of 2025 will show a quarter-on-quarter growth of 5%-7%, and such short-term upward trends will act as catalysts for the stock price.

The analysts' optimistic expectations are mainly based on the rapid growth in demand for artificial intelligence applications and the increased demand for advanced process technology from domestic chip design companies. With more AI-related application scenarios being implemented, demand for high-performance chips is expected to rise, thereby boosting the capacity utilization and pricing power of foundries.

The current target price increase reflects Wall Street's recognition of the long-term development potential of China's semiconductor industry, especially under the trends of global supply chain restructuring and technological self-sufficiency, the strategic value of domestic chip foundry companies is becoming increasingly prominent.

It is worth mentioning that SMIC has shown robust financial performance in recent times. According to Wall Street News financial report article, SMIC's revenue in the first half of 2025 increased by 22.0% year-on-year to USD 4.456 billion, with a gross margin rising to 21.4% and a net margin of 10.5%. Among them, the revenue from wafer foundry business increased by 24.6% year-on-year to USD 4.229 billion. The company's management stated that the improvement in performance is mainly due to the combined effects of increased sales volume of wafers, rising average selling prices, and changes in product mix.

Capacity Expansion and Structural Optimization

SMIC is also continuously making efforts in capacity construction and product structure optimization. In the first half of the year, the company added nearly 20,000 pieces of 12-inch standard logic monthly capacity and continues to focus on differentiated platform construction, steadily advancing multiple technology platforms such as the 28-nanometer ultra-low leakage platform, 40-nanometer embedded flash memory, and 65-nanometer RF SOI.

From the revenue structure, the company's semi-annual report shows that consumer electronics, smartphones, and industrial and automotive applications are all important contributing areas, with the proportion of industrial and automotive applications increasing from 7.7% in the same period last year to 10.1%, reflecting positive changes in downstream demand structure The revenue share of 12-inch wafers increased from 74.5% in the same period last year to 77.1%, indicating that the company's product structure continues to optimize towards advanced processes.

Looking ahead to the second half of the year, the management of SMIC stated that due to changes in domestic and foreign policies, the situation of channels intensifying stockpiling and replenishing inventory is expected to continue until the third quarter. Although the fourth quarter is traditionally a slow season for the industry, due to the overall supply-demand imbalance of the company's production capacity, the slowdown in volume will not have a significant impact on capacity utilization. The company's goal for the year is to exceed the average level of comparable peers