Core Viewpoint - The Chinese semiconductor equipment suppliers are poised for structural opportunities despite local semiconductor companies' stock prices reaching a four-year high, as demand for equipment will benefit from the ongoing industrial upgrade wave [1][6]. Group 1: Market Performance - The Shanghai Stock Exchange STAR 50 Index, focusing on local chip companies, surged 28% in August, reaching a historical high, driven by regulatory guidance to reduce reliance on Nvidia's H20 chips, catalyzing the domestic substitution process [1]. - The current price-to-earnings (P/E) ratio of the STAR 50 Index is 62 times, which is 50% higher than its five-year average, while the Philadelphia Semiconductor Index's P/E ratio stands at only 24 times [1]. Group 2: Investment Focus - Caution is advised regarding listed companies directly involved in chip production, as their valuations reflect expectations and face challenges related to demand sustainability and capacity targets [4]. - The stock price of Cambricon Technologies (688256.SH) doubled since December, with a P/E ratio exceeding 200 times, making it the most expensive stock in A-shares [4][5]. Group 3: Equipment Suppliers - The focus is on equipment suppliers, with Northern Huachuang Technology Group (002371.SZ) stock rising 30% this year, while the semiconductor equipment sector saw an 18% increase [5]. - The total investment by Chinese cloud service providers this year is approximately $50 billion, only one-sixth of the $330 billion investment by the top four U.S. hyperscalers, indicating significant room for capital expenditure growth [5]. Group 4: U.S.-China Technology Competition - There may be a "compromise" in U.S.-China technology competition, where China continues to purchase older Nvidia chips while advancing its semiconductor self-sufficiency goals, creating a dynamic balance that preserves market space for international equipment suppliers and drives technological iteration for local suppliers [6].

Group 1 - The core viewpoint is that Chinese semiconductor equipment suppliers are poised for structural opportunities despite local semiconductor companies reaching four-year stock highs, with a focus on upstream equipment benefiting from industry upgrades [1] - The manager of a $2.1 billion fund noted that the demand for equipment will continue regardless of changes in the competitive landscape of downstream chip manufacturers, supporting the "shovel seller" advantage of equipment suppliers [1] - The STAR 50 index, which focuses on local chip companies, surged 28% in August, reaching a historical high, driven by regulatory guidance encouraging reduced reliance on Nvidia's H20 chips, thus accelerating the domestic substitution process [1] Group 2 - Caution is advised regarding listed companies directly involved in chip production, as their valuations reflect expectations and face challenges related to demand sustainability and capacity targets [4] - An example is Cambrian Technology, whose stock price has doubled since December, with a P/E ratio exceeding 200, highlighting a significant shift in market capital flow from consumer stocks to technology stocks [4] - The focus is on equipment suppliers, with another fund holding shares in North China Technology Group, which saw a 30% increase in stock price this year, while semiconductor equipment stocks rose by 18% [4] Group 3 - In the AI sector, there is a distinction between beneficiaries of capital expenditure and AI application deployers, with Chinese cloud service providers investing approximately $50 billion this year, significantly less than the $330 billion by the top four U.S. firms, indicating room for capital expenditure growth [5] - Despite being years behind the U.S. in development, the launch of new models by companies like DeepSeek is seen as a positive signal for sustainable profit growth [5] - Regarding U.S.-China technology competition, a compromise may be reached where China continues to purchase older Nvidia chips while advancing its semiconductor self-sufficiency goals, creating a dynamic balance that benefits both international equipment suppliers and local equipment suppliers' technological iteration needs [5]