Goldman Sachs raises SMIC H-share target price by 15%, expects domestic demand to support output and average selling price.

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

Recently, Goldman Sachs significantly increased SMIC's 12-month target price for Hong Kong H-shares by 15% to HK$73.1, and maintained a buy rating on the stock. Meanwhile, considering the valuation premium between A-shares and H-shares, the target price for A-shares remains basically unchanged at RMB 160.1.

Analysts Allen Chang and others stated that they maintained basically unchanged earnings forecasts for SMIC from 2025 to 2027, but raised revenue and EPS forecasts for 2028 and 2029. Specifically, EPS forecasts for 2028 and 2029 were increased by 3% and 7% respectively, while revenue forecasts were raised by 0.4% and 2% respectively.

Analysts point out that driven by Chinese IC design firms and the AI trend, SMIC’s long-term growth is expected to be even stronger, which will support its output and average selling prices. The institution believes the continuous growth of domestic IC design demand will bring SMIC more order opportunities.

Short-term Catalysts Expected

Looking at short-term performance, Goldman Sachs expects that the 5%-7% quarter-on-quarter growth in revenue guidance for Q3 2025 and other short-term upward trends will be catalysts for the stock price.

The analysts’ optimism is mainly based on the rapid growth in demand for AI applications and the increasing demand for advanced process technology from Chinese local chip design firms. As more AI-related application scenarios are implemented, it is expected to drive demand for high-performance chips, thereby boosting the capacity utilization and pricing power of foundries.

The current target price upgrade reflects Wall Street’s recognition of the long-term development potential of the Chinese semiconductor industry. Especially against the background of global supply chain restructuring and trends of technological self-sufficiency, the strategic value of domestic chip foundries is becoming increasingly prominent.

It is worth noting that SMIC has demonstrated strong financial performance over the past period. According to a Wallstreetcn financial report article, SMIC’s revenue for the first half of 2025 increased by 22.0% year-on-year to US$4.456 billion, with gross margin rising to 21.4% and net profit margin reaching 10.5%. Among them, revenue from wafer foundry business rose 24.6% year-on-year to US$4.229 billion. The company’s management said that the improvement in results was mainly due to the combined effects of increased wafer sales volume, higher average selling prices, and changes in product mix.

Capacity Expansion and Structural Optimization

SMIC continues to make efforts in capacity building 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 continued to focus on differentiated platform construction, making steady progress across a number of technical platforms such as 28nm ultra-low leakage, 40nm embedded flash, and 65nm RF-SOI.

From a revenue structure perspective, the company’s semi-annual report shows that consumer electronics, smartphones, as well as industrial and automotive applications are all important contributing fields. Among them, the proportion of industrial and automotive applications rose from 7.7% in the same period last year to 10.1%, reflecting positive changes in downstream demand structure. The proportion of 12-inch wafer revenue rose from 74.5% in the same period last year to 77.1%, demonstrating a continued optimization towards advanced processes in the company’s product structure.

Looking forward to the second half of the year, SMIC management said that under the impact of domestic and international policy changes, channel stocking and inventory replenishment is expected to continue through the third quarter. Although the fourth quarter is the industry’s traditional off-season, because the company’s overall capacity remains in short supply, the slowing volume will not have a significant impact on capacity utilization. The company’s full-year goal is to exceed the average level of comparable peers.

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