Morgan Stanley: Who Will Win Among China’s AI Chip Suppliers?

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AI computing power demand continues to expand, and the Chinese AI chip market is ushering in structural growth opportunities.

In a report released by Morgan Stanley on April 26, the firm for the first time covered three Chinese AI chip suppliers, believing the industry’s driving logic has shifted from policy-driven to economically driven. Success is no longer determined solely by chip specifications, but depends on the economics of unit token costs, maturity of the software ecosystem, and the depth of customer binding.

Based on this framework, Morgan Stanley gives an Overweight rating to Cambricon and Iluvatar, and an Equal-weight rating to Moore Thread. Each company has its own positioning: Cambricon, with its MLU590 chip, has achieved large-scale deployments in cloud service providers such as ByteDance, making it the current leader in cloud inference; Iluvatar forms a differentiated advantage through a diversified supply chain strategy, and its AI chips have already received large pre-orders, with high order visibility; Moore Thread offers unique software compatibility, but customer penetration lags behind, and its current valuation appears slightly less attractive.

Channel research shows continued strong inference demand, with both token prices and GPU rental prices rising. Meanwhile, price competition has arrived earlier than expected, with some vendors beginning to lower prices to grab market share, and the industry may enter a share-grabbing stage ahead of schedule. Morgan Stanley maintains a long-term optimistic view of China’s AI chip market, projecting market size to reach $67 billion by 2030.

Cambricon: Cloud Inference Leader, Customer Anchoring Builds Barriers

The report positions Cambricon as the leading domestic AI inference chip company, with core support from three factors.

First, the MLU590 chip has been widely deployed in the search, advertising, and recommendation (SAD) systems of major cloud service providers such as ByteDance, showing significant customer anchoring effects; second, the company’s years of cooperation with ByteDance have resulted in ongoing hardware-software collaborative optimization; third, Cambricon is projected to achieve annual profitability in 2025, becoming the first domestic AI chip company to achieve sustainable profitability, with revenue reaching RMB 6.497 billion in 2025.

The report forecasts Cambricon’s 2026 revenue will reach RMB 20.944 billion, up about 222% year-on-year, higher than the market consensus of RMB 14.057 billion. The company expects a compound annual growth rate of about 90% from 2026 to 2028, and predicts a net profit of RMB 6.156 billion in 2026.

Main risks include: high customer concentration—ByteDance accounted for 79.15% of its revenue in 2024; and intensifying competition from leading peers.

Iluvatar: Diversified Supply Chain Builds Barrier, Large Orders Lock in High Growth

Overweight rating for Iluvatar, the core logic lies in its differentiated advantage brought by supply chain diversification strategy. Unlike peers who mainly rely on a single wafer foundry, Iluvatar adopts a multiple-foundry strategy, enabling AI chip production across multiple compliant production lines, with higher capacity certainty, helping to avoid supply interruption risks.

According to channel research, major domestic cloud service providers have placed large pre-orders for Iluvatar’s AI chips, with shipments expected to begin in Q2 2026 and significant ramp-up in the second half of the year. These orders are expected to contribute more than RMB 4 billion in revenue to Iluvatar between 2026 and 2027. In terms of software, Iluvatar’s GPGPU architecture is highly compatible with CUDA, helping customers migrate large models from NVIDIA platforms to Iluvatar’s platform, effectively reducing migration friction.

Forecasts show Iluvatar’s 2026 revenue will be RMB 3.06 billion, up 196% year-on-year; reach RMB 7.5 billion in 2027; with a compound annual growth rate of about 122% from 2025 to 2028. The company expects to achieve single-quarter profitability in the second half of 2026, and full-year profitability in 2027. Main downside risks include: slower-than-expected chip shipments, capacity ramp-up hurdles, and intensified competition delaying the profitability turning point.

Moore Thread: Software Compatibility Shines; Customer Expansion Still to be Verified

Equal-weight rating for Moore Thread, which is seen as having balanced risk/reward. The company’s core differentiation lies in the MXMACA software platform, which supports over 6,000 CUDA APIs, providing NVIDIA users with a relatively low-friction migration path. The company has achieved mass production, and its supply chain visibility and yield stability outperform some peers.

However, Moore Thread lags behind Cambricon and Iluvatar in cloud service provider customer penetration, with large-scale commercial deployment still needing time for verification. The company’s 2025 revenue will be RMB 1.644 billion, and it is not yet profitable. Expected 2026 revenue is RMB 4.03 billion, up about 145% year-on-year; compound annual growth rate of about 66% from 2026 to 2028, and may achieve first profitability in 2026 with EPS around RMB 0.05. Target price of RMB 758 corresponds to a 75x expected price-to-sales ratio for 2026, with current valuation slightly less attractive compared to Cambricon and Iluvatar.

Looking from individual stocks back to the industry, Morgan Stanley maintains its long-term view on China’s AI chip market: the addressable market is expected to reach $67 billion by 2030, with a compound annual growth rate of about 23% from 2024 to 2030.

The core driver of this growth comes from the rapid commercialization of AI inference demand. Channel research shows that AI-related capital expenditure by major Chinese tech platforms is expected to increase by 38% year-on-year to RMB 597 billion in 2026; monthly token processing volumes at platforms such as ByteDance have surged, confirming continued strong downstream demand. The market landscape is still evolving, and who will ultimately emerge as the winner remains to be seen.

Risk Warning and DisclaimerThe market involves risk; investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the special investment goals, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their specific situation. Investments made accordingly are at one’s own risk. ```