Summary of the Investor Presentation: Greater China Semiconductors Outlook Industry Overview - **Industry Focus**: Semiconductors in Greater China - **Overall Industry View**: Attractive [2][4] Key Insights - **Top Investment Picks**: - **AI Segment**: TSMC (Top Pick), Winbond (Top Pick), Alchip, Aspeed, MediaTek, KYEC, ASE, FOCI, Himax, ASMPT [4] - **Non-AI Segment**: Novatek, OmniVision, Realtek [4] - **China Wafer Fabrication Equipment (WFE)**: NAURA Tech, AMEC, ACMR [4] - **Specialty Semiconductors**: Silergy, SG Micro, SICC, Yangjie [4] - **Market Dynamics**: - AI cannibalization may impact recovery in the second half of 2025 due to tariff costs [4] - A decline in semiconductor inventory days historically signals positive stock price appreciation [4] - The demand for AI semiconductors is expected to accelerate due to generative AI, influencing various verticals beyond the semiconductor industry [4] - Tech deflation is anticipated to stimulate demand for technology products [4] Financial Metrics and Valuation - **Valuation Comparison**: - TSMC's current price is 1,255.0 TWD with a target of 1,388.0 TWD, indicating an 11% upside [5] - UMC's current price is 41.1 TWD with a target of 48.0 TWD, indicating a 17% upside [5] - SMIC's current price is 63.0 HKD with a target of 40.0 HKD, indicating a -37% downside [5] - **P/E Ratios**: - TSMC: 27.7 (2024), 21.4 (2025e), 18.4 (2026e) [5] - UMC: 10.9 (2024), 15.6 (2025e), 11.5 (2026e) [5] - **EPS Growth**: - TSMC: 40% (2024), 29% (2025e), 17% (2026e) [5] - UMC: -23% (2024), -30% (2025e), 35% (2026e) [5] Supply Chain and Production Insights - **China's GPU Supply**: - The self-sufficiency ratio for domestic GPUs was 34% in 2024, expected to reach 82% by 2027 [26] - Local GPU revenue could grow to RMB 287 billion by 2027, driven by SMIC's leading node capacity [31] - **Capex Forecast**: - The top six companies' capital expenditures are forecasted to grow 62% YoY to RMB 373 billion [24] Additional Considerations - **AI Demand**: The DeepSeek technology is expected to drive inference AI demand, raising questions about the sufficiency of domestic GPU supply [4][21] - **Market Trends**: The semiconductor stock index has shown an upward trend, with non-AI semiconductor growth at only 10% YoY in 2024 [9][14] This summary encapsulates the critical insights and financial metrics from the investor presentation, highlighting the semiconductor industry's current landscape and future outlook in Greater China.

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **Chinese semiconductor industry**, particularly the development of **domestic AI GPUs** and the localization efforts in semiconductor manufacturing. Core Insights and Arguments 1. **Driving Factors for Domestic GPU Shipments**: - Four key factors are identified as driving the growth of China's domestic GPU shipments: - SMIC's 7nm process capacity and yield [1] - Chinese CSPs' AI chip sourcing strategies [1] - Nvidia's B40 chip performance and pricing [1] - Expansion of China's AI capital expenditures [1] - Morgan Stanley has an **Overweight (OW)** rating on TSMC and an **Equal Weight (EW)** rating on SMIC, indicating a positive outlook on these foundries [1] 2. **DeepSeek's New Model**: - The new V3.1 model of **DeepSeek** supports next-generation local AI chips, utilizing a new precision parameter, **UE8M0 FP8**, which enhances compatibility with various Chinese-made chips [2][3] - CAICT has released a list of local AI chips compatible with DeepSeek, including products from **Huawei, Cambricon, Kunlun, Hygon, and MetaX** [2] 3. **Alibaba's AI Chip Development**: - **Alibaba** has developed a new AI chip manufactured by a Chinese foundry, aiming for broader AI inference tasks, contrasting with previous chips made by TSMC [4] - Major municipalities in China, such as **Shanghai**, are targeting 70% domestic design or production of data center chips by 2027 [4] 4. **Self-Sufficiency in Semiconductors**: - China's semiconductor self-sufficiency ratio is projected to rise from **24% in 2024** to **30% by 2027**, driven by advancements in local chip production and demand stability [34][36] - Significant improvements in production capabilities for **CPUs and GPUs** are noted, particularly with Huawei's Ascend chips [37] 5. **Market Trends and Performance**: - **Cambricon** has announced a full-year sales guidance of **Rmb5-7 billion**, which is below market expectations [9] - **Dosilicon** experienced a stock suspension due to volatility, with a notable increase of **216%** since the announcement of its G100 series GPU [9] - Smaller Chinese AI developers still prefer Nvidia's H20 over local GPUs for training due to better software support [9] Additional Important Insights - **China's Semiconductor Equipment Imports**: - In July 2025, China's semiconductor equipment imports reached **US$3.4 billion**, marking a **14% year-over-year increase** [15] - The growth in imports is expected to continue, with a forecasted improvement in equipment spending in the second half of 2025 [15] - **Performance of Key Stocks**: - Notable outperformers include **Espressif (+34.1%)**, **GigaDevice (+32.2%)**, and **Hua Hong (+27.0%)**, while underperformers include **ACMR (-10.9%)** and **ASMPT (+1.7%)** [22][23] - **Future Events**: - Upcoming semiconductor exhibitions in China are scheduled for September 2025, which may serve as platforms for showcasing advancements in the industry [33] This summary encapsulates the critical points discussed in the conference call, highlighting the advancements and challenges within the Chinese semiconductor industry, particularly in the context of AI chip development and localization efforts.

Summary of Key Points from TSMC 2Q25 Earnings Call Company Overview - **Company**: Taiwan Semiconductor Manufacturing Company (TSMC) - **Industry**: Semiconductors Core Financial Results - **2Q25 Revenue**: NT$933.792 million, representing an increase of 11.3% quarter-over-quarter (QoQ) and 38.6% year-over-year (YoY) [7] - **Operating Expenses (Opex)**: NT$83.946 million, a decrease of 2.7% QoQ and an increase of 17.3% YoY [7] - **Earnings Per Share (EPS)**: NT$15.36, up 10.2% QoQ and 60.7% YoY, exceeding Morgan Stanley's estimate of NT$14.60 [7] - **Gross Margin (GM)**: 58.6%, a slight decrease of 17 basis points (bps) QoQ but an increase of 545 bps YoY [7] - **Operating Margin (OPM)**: 49.6%, up 112 bps QoQ and 708 bps YoY [7] 3Q25 Guidance - **Revenue Guidance**: Expected to be between US$31.8 billion and US$33.0 billion, indicating an 8% increase at the mid-point QoQ [10] - **EPS Guidance**: Projected at NT$13.33, down 13.2% QoQ but up 6.3% YoY [10] - **Gross Margin Guidance**: Expected to be between 55.5% and 57.5% [10] Strategic Insights - **Wafer Pricing**: TSMC is expected to achieve its goal of over 53% gross margin, supported by strong execution and potential wafer price hikes [12][14] - **AI Revenue Growth**: TSMC's AI semiconductor revenue is projected to account for approximately 34% of its revenue by 2027 [22] - **Chip Production**: TSMC is expected to produce 5.1 million chips in 2025, with full-year GB200 NVL72 shipments expected to reach 30,000 [24] Market Dynamics - **Demand for Advanced Nodes**: There is strong demand for TSMC's 2nm and 3nm nodes, driven by smartphone and high-performance computing (HPC) applications [27][29] - **China's AI Semiconductor Demand**: The demand for AI semiconductors in China is expected to grow significantly, with the total addressable market (TAM) projected to reach US$48 billion by 2027 [44] Risks and Considerations - **FX Impact**: The potential foreign exchange impact could be offset by strong operational execution and pricing strategies [12] - **Geopolitical Risks**: Ongoing geopolitical tensions and restrictions may pose risks to TSMC's operations and market access, particularly in China [84] Conclusion - TSMC's strong financial performance in 2Q25 and optimistic guidance for 3Q25 reflect robust demand in the semiconductor market, particularly in AI and advanced technology nodes. The company is well-positioned to capitalize on growth opportunities while navigating potential risks associated with geopolitical factors and market dynamics.

Investment Rating - The industry investment rating is "In-Line" for Greater China Technology Semiconductors [2]. Core Insights - The report highlights the growth potential in China's AI semiconductor sector, with a forecasted capital expenditure increase of 62% year-over-year to RMB 373 billion for the top six companies [19]. - TSMC's revenue guidance for Q3 2025 indicates a potential growth of approximately 3% quarter-over-quarter in USD, but a decline of 1.6% in TWD [12]. - The report anticipates that China's local GPU market will significantly expand, with local GPU revenue projected to reach RMB 287 billion by 2027, driven by advancements in SMIC's leading node capacity [33]. Summary by Sections Valuation Comparison - TSMC's target price is set at 1,288 TWD, representing a 19% upside potential, with an estimated P/E ratio of 23.9x for 2024 [8]. - The average EPS growth for the semiconductor sector is projected at 40% for 2024, with a mean P/B ratio of 2.3x [8]. - The memory segment shows a notable upside potential for Giga Device, with a target price of 145.0 CNY, indicating a 20% upside [9]. TSMC Preview - TSMC's Q3 2025 revenue is estimated at NT$ 910 billion, with a gross profit of NT$ 508 billion, reflecting a year-over-year growth of 35.1% [12]. - The gross margin is expected to be 55.8%, while the operating margin is projected at 45.5% [12]. China AI Semiconductor Demand - The report projects that China's GPU self-sufficiency ratio will increase from 34% in 2024 to 82% by 2027, indicating a strong trend towards domestic production [28]. - The total addressable market (TAM) for cloud AI in China is expected to reach USD 48 billion by 2027 [30].

Investment Rating - Industry View: In-Line [5] Core Insights - The semiconductor industry is experiencing unprecedented demand driven by AI advancements and geopolitical tensions [3][5] - China's AI semiconductor market is expected to see significant growth, with local GPU revenue projected to reach Rmb287 billion by 2027 [21][19] - The overall AI semiconductor market is anticipated to deliver over 30% CAGR from 2023 to 2030, with inference AI semiconductors growing at 55% CAGR [78][77] Summary by Sections China AI Semi Demand and Supply - The top six companies' capital expenditures are forecasted to grow 62% YoY to Rmb373 billion [10] - China's GPU self-sufficiency ratio was 34% in 2024 and is expected to reach 82% by 2027 [16] - The total addressable market (TAM) for China's cloud AI is projected to be US$48 billion by 2027 [18] Semiconductor Solutions and Technology Trends - Moore's Law is expected to continue with chip scaling to 3nm/2nm for better power efficiency [78] - Advanced packaging technologies like CoWoS and SoIC are being utilized to increase data speed and memory bandwidth [78] - The EDA market in China is projected to grow at a 12% CAGR from 2023 to 2030, reaching US$3.3 billion [29] Investment Opportunities - AI semiconductors are expected to account for approximately 34% of TSMC's revenue by 2027 [148] - The demand for custom AI semiconductors is increasing, driven by major cloud service providers and tech companies [120][121] - The global semiconductor market size may reach US$1 trillion by 2030, with AI semiconductors being a major growth driver [59]

Investment Rating - Industry View: In-Line [7] Core Insights - The semiconductor industry is experiencing unprecedented demand driven by AI advancements and geopolitical tensions, particularly in the context of China's push for AI localization [4][8]. - The report highlights a decoupling between broader semiconductor cycles and AI growth, indicating that while overall semiconductor growth was slow at 10% year-over-year in 2024, AI-related demand continues to surge [10][13]. - Logic semiconductor foundry utilization is reported at 70-80% in the first half of 2025, suggesting that recovery is still ongoing [9]. Demand and Supply Dynamics - Significant demand is anticipated from AI, with NVIDIA experiencing booming demand and its Days of Inventory (DOI) reaching a historical low [15]. - The report forecasts that the top six companies' capital expenditures (capex) will grow by 62% year-over-year to RMB 373 billion [30]. - China's GPU self-sufficiency ratio was 34% in 2024, expected to rise to 82% by 2027, with local GPU revenue projected to reach RMB 287 billion by 2027 [32][35]. Market Trends and Projections - The total addressable market (TAM) for cloud AI semiconductors is projected to grow to USD 235 billion in 2025, with edge AI semiconductors expected to grow at a compound annual growth rate (CAGR) of 22% from 2023 to 2030 [49][60]. - Inference AI semiconductors are forecasted to grow at a CAGR of 55% from 2023 to 2030, outpacing training and general-purpose chips [60]. - The report anticipates robust cloud capex spending of nearly USD 789 billion across 2025-2026, driven by major cloud service providers [49]. Supply Chain and Capacity - TSMC is expected to expand its CoWoS capacity significantly, with projections of producing 5.1 million chips in 2025 [61][70]. - AI computing wafer consumption is estimated to reach up to USD 15 billion in 2025, with NVIDIA accounting for the majority of this consumption [73]. - The report indicates that the semiconductor supply chain is under pressure, with GPU supply and demand needing time to align [70].

Core Viewpoint - Nvidia's stock price has increased by 34% since April 6, despite the announcement of needing a license to export its H20 GPU to China, indicating strong market confidence in the company's valuation and future performance [1][3]. Group 1: Stock Performance and Analyst Sentiment - Following the 8-K report, Nvidia's stock experienced a 7% sell-off, but analysts remain optimistic, believing the stock is undervalued compared to its historical performance and peers like AMD [1][3]. - Analysts have reiterated a strong buy rating, projecting that the company's performance at the end of the month will exceed that of the first quarter, despite the export challenges for the H20 GPU [3]. - Since the announcement on April 15, Nvidia's stock has risen by 5%, reflecting positive market sentiment [6]. Group 2: Revenue Projections and Market Dynamics - Analysts estimate that the sale of 1 million H20 GPUs in 2024 could generate $12 billion in revenue, which may contribute to a decline in overall profit margins since these GPUs are priced over 10% lower than Huawei's Ascend 910B [3]. - Major Chinese clients, including ByteDance, Alibaba, and Tencent, ordered over $16 billion worth of H20 chips in the first quarter, suggesting strong demand and potential for exceeding previous sales figures [7]. - Nvidia's stock remains lower than its peers in most valuation ratios, indicating potential for further appreciation [7]. Group 3: Regulatory Environment and Market Conditions - The recent withdrawal of AI diffusion rules by the Trump administration has introduced uncertainty in the U.S. semiconductor industry, which could benefit Nvidia [7]. - The company has previously navigated export restrictions, such as the ban on A100/H100 GPUs to China, by introducing compliant alternatives like the A800/H800 chips [3]. - Analysts are cautious about upcoming semiconductor tariffs, which could impact pricing and profit margins, but customers have not reduced their capital expenditure expectations [12].

Summary of SMIC Conference Call Company Overview - **Company**: Semiconductor Manufacturing International Corporation (SMIC) - **Ticker**: 0981.HK - **Industry**: Semiconductors - **Region**: Asia Pacific, Greater China Key Points and Arguments Demand and Supply Dynamics - **AI GPU Demand**: Domestic demand for AI GPUs is larger than expected, driven by rising AI inference needs and limited supply from US AI GPUs, positioning SMIC as a key supporter for local AI chip designers [1][2] - **Advanced Node Capacity**: There is a possibility that advanced node capacity in China is underestimated due to equipment bottlenecks, particularly in lithography and inspection tools [3] - **Production Estimates**: SMIC could produce approximately 3.6 million units of AI GPUs per year, assuming a 15kwpm advanced node capacity for Huawei's AI chip [4] Financial Projections - **Price Target Adjustment**: The price target for SMIC has been raised from HK$38.00 to HK$40.00, reflecting higher EPS estimates for 2025-2027 [5][43] - **Revenue Growth**: Revenue forecasts for 2025, 2026, and 2027 have been increased by 3%, 8%, and 7% respectively, due to strong demand for advanced node production [40] - **Earnings Estimates**: EPS estimates for 2025, 2026, and 2027 have been raised by 5%, 5%, and 1% respectively [40] Market Position and Valuation - **Valuation Metrics**: SMIC's stock is currently trading at a P/B of 1.8x 2025e BVPS, which is close to +2SD of its historical average [48] - **Gross Margin Outlook**: The gross margin is expected to remain stable in 2025, with potential for expansion due to rising ASPs and improved yield rates [31][47] Risks and Concerns - **Mature Node Oversupply**: There are concerns regarding oversupply in mature nodes, which could lead to intensified pricing competition in the second half of 2025 [47][59] - **Capacity Expansion Limitations**: Risks include potential limitations on capacity expansion due to export controls and low yield rates [46][59] Strategic Insights - **Localization Demand**: SMIC is well-positioned to benefit from localization demand in China, supported by government initiatives and the need for domestic chip production [59] - **AI and Advanced Node Growth**: The company is expected to gain from the growing demand for advanced nodes, which may lead to higher valuations in the future [48][59] Additional Important Insights - **Market Cap and Trading Data**: As of April 8, 2025, SMIC's market cap is approximately US$35.49 billion, with an average daily trading value of HK$2.69 billion [7] - **Utilization Rates**: SMIC's utilization rates are higher than those of Taiwanese peers, indicating strong operational efficiency [25] This summary encapsulates the critical insights from the conference call, highlighting SMIC's market position, financial outlook, and the dynamics of the semiconductor industry in China.