Despite the sharp selloff in some mainland-listed shares in the AI ecosystem, domestic semiconductor names rallied as investors bought into self-reliance theme
China-listed semiconductor stocks diverged sharply on Tuesday after new U.S. restrictions targeted Chinese companies supplying optical transceivers to data centers, with export-oriented stocks falling while domestic AI chipmakers and semiconductor equipment manufacturers jumped.
The U.S. Federal Communications Commission (FCC) announced on Aug. 4 that Chinese optical module companies would be barred from accessing U.S. communications networks, a move that weighed heavily on companies exposed to overseas AI infrastructure spending.
Shares of Zhongji Innolight (300308.SZ) fell as much as 15% before closing down 7.27% at 947.74 yuan ($140.35), while Eoptolink Technology (300502.SZ) lost 5.29% to 424.30 yuan. Combined turnover in the two stocks exceeded 100 billion yuan.
By contrast, China’s domestic computing power supply chain posted broad gains. AI processor developer Cambricon Technologies (688256.SH) rose 5.44%, SMIC (688981.SH) gained 3.59%, and semiconductor equipment maker NAURA Technology Group (002371.SZ) climbed 6.87%. The STAR 50 Index advanced 4.78%, while a semiconductor equipment index jumped 9%.
Investors rotate rather than retreat
The contrasting performance suggests investors are rotating within China’s AI supply chain rather than abandoning semiconductor-related assets altogether. Instead of withdrawing from the broader “silicon-based” technology sector, capital appears to be shifting away from export-dependent businesses vulnerable to U.S. restrictions and toward companies viewed as beneficiaries of Beijing’s push for semiconductor self-sufficiency.
The FCC decision has reinforced, rather than weakened, investor conviction that domestic substitution will become increasingly important as geopolitical tensions continue.
There are also broader macroeconomic developments that could support risk assets globally. The U.S. dollar index has fallen below 100, easing pressure on global liquidity, while reports that negotiations over the Strait of Hormuz are approaching an agreement could reduce geopolitical risk premiums. Together, those developments may improve investors’ appetite for higher-risk assets, including technology stocks.
Major U.S. cloud service providers are continuing to invest, evidence that the longer-term AI investment cycle remains intact. Meta, Microsoft, Amazon and Google all reiterated during the latest earnings season that they plan to continue increasing capital expenditure on AI infrastructure. Those commitments are significant because the four companies account for a large share of global spending on AI data centers and computing infrastructure. Their continued investment provides visibility for suppliers throughout the AI hardware ecosystem.
South Korea’s market has also recovered alongside U.S. technology shares, driven largely by memory chip producers Samsung Electronics and SK Hynix. The rebound in Korean semiconductor stocks, coming less than a week after U.S. technology shares stabilized, suggests that semiconductor markets globally are moving broadly in tandem as international investors rebalance portfolios.
China’s market is more complex. Excessive gains in May and June left heavy overhangs, prompting a sharp correction on Tuesday, but the market quickly recognised its error. Even with the FCC’s substantive negative news, A-share silicon stocks did not collapse. More importantly, the domestic chain rallied strongly, suggesting that A-share silicon is beginning to move in tandem with global peers. Fear-driven contagion is abating.
Valuations and domestic substitution
Many consider silicon stocks expensive. InnoLight trades at 28 times trailing 12-month earnings, against the CSI All-Share index’s 20.91 times. On the surface, that looks rich. But InnoLight’s forward PE — based on next-12-month earnings estimates — is just 20 times, implying substantial profit growth ahead. Comparing a high-growth AI leader with an index bloated with stagnant traditional industries is misleading. The relevant yardstick is growth.
Moreover, China’s computing infrastructure build-out is accelerating. Under the plan of the Ministry of Industry and Information Technology, China’s total computing capacity should have exceeded 300 EFLOPS — units used to measure the raw processing speed of the world’s most powerful supercomputers — by the end of 2025, with intelligent computing accounting for 35% of the total. Progress is ahead of schedule, with central state-owned enterprises, local governments and major internet companies all investing heavily in AI computing centers. That expansion should sustain strong demand for AI processors over the coming years.
U.S. export controls have increased opportunities for domestic chip suppliers. With access to Nvidia’s advanced H100 and H200 AI processors constrained by U.S. restrictions, Chinese companies such as Cambricon and Hygon Information Technology (688041.SH) face growing demand from customers seeking domestic alternatives.
The semiconductor supply chain, from lithography to EDA software and advanced packaging, presents similar opportunities. This AI wave is accelerating China’s push for self-sufficiency, much as the mobile phone industry evolved from assembly to indigenous chip design — not by choice, but by necessity.
Long-term outlook
The correction that took place in China’s equity market in July has removed speculative excess without undermining the industry’s underlying fundamentals.
Over the past 20 trading days, Zhongji Innolight has fallen 16% and Cambricon nearly 20%, although both remain significantly higher for the year, up 55% and 25% respectively. This correction looks like a bull-market pullback, not the start of a bear market.
Looking back at the epic history of technology—from the PC internet era to the mobile internet era—every technological revolution has been accompanied by speculative bubbles, sharp corrections, controversy, and geopolitical friction. Ultimately, however, success is determined not by the depth of any single pullback, but by whether you stayed in the game.
When the dot-com bubble burst in 2000, the Nasdaq plummeted nearly 78%, and countless companies vanished into thin air. Yet, two decades later, what industry could possibly function without the internet? Those who held firm through the bubble lived to see the rise of the trillion-dollar empires of Amazon, Google, and Apple.
The silicon-based sector today is exactly where the internet was back then.
