CXMT’s blockbuster IPO will test whether China’s memory makers are ready for the spotlight: ‘It does not yet mean China is broadly catching up’

Yet experts are split on whether the rise in CXMT’s stock price is a temporary boost fueled by AI-driven memory shortages, or a long-term shift in global AI supply chains where Chinese chipmakers are now coming to the fore.

“China is clearly becoming a more important memory chip player, but this is happening in a market distorted by AI demand, supply shortages and state-backed industrial policy,” says Barbora Valockova, a research fellow at Singapore’s Lee Kuan Yew School of Public Policy. “It does not yet mean China is broadly catching up to the leaders across the full chip stack.”

According to Valockova, though shortages are forcing companies to explore Chinese chip supplies, adoption is still likely to be selective and politically contested, especially in the U.S. 

On July 30, a group of U.S. lawmakers led by Indiana Republican Jim Banks and New York Democrat Chuck Schumer penned a letter to Apple CEO Tim Cook, urging him to abandon any efforts to buy chips from ‘blacklisted’ Chinese semiconductor suppliers like CXMT and Yangtze Memory Technologies Co., or YMTC.

“This short-sighted move would be a mistake, and it would ensure the world’s most valuable consumer electronics company grows dependent on critical supplies from a firm the U.S. government has formally designated as a Chinese military company,” the senators wrote, noting that the two Chinese chipmakers were on an updated Pentagon list of Chinese entities believed to be supporting Beijing’s military.

Apple had previously been in negotiations to acquire chips from both firms, as it battles a global memory supply shortage which sent product prices skyrocketing. “We’re seeing some very significant constraints currently, with limited flexibility in the supply chain,” Apple CEO Tim Cook said during an earnings call last Thursday (July 30). “We’re in what I would characterize as a 100-year flood on the memory pricing, with exponential increases in memory prices.”

Other experts, like Kong Tuan Yuen, a research fellow from the East Asian Institute at the National University of Singapore (NUS), argue that while the memory shortage will boost demand for Chinese chips, most global firms will still look to CXMT only as a secondary source. “While it may be necessary for companies to diversify their supply chains, they will maintain multiple sources of supplies that are located in different geographic locations to mitigate long-term geopolitical risks,” he said. 

Most firms will likely also opt to use SK Hynix, Micron or Samsung chips as their primary source, since CXMT still incurs higher costs in chip manufacturing, Rolf Bulk, Futurum’s head of semiconductor and infrastructure equity research, told CNBC. “CXMT is still two to three generations behind SK Hynix, Samsung, and Micron when it comes to the performance of their chips. So for every chip they produce, they have to spend 20% to 30% more on a cost per bit basis,” Bulk said.

Global chipmaker stocks tumble

Though Chinese chipmakers remain a few generations behind other incumbents, the global tech market was rattled by recent advances in China’s AI space, which included CXMT’s blockbuster debut and Moonshot’s Kimi K3 release. AI chip giant Nvidia saw its stocks fall by 5% on Monday, while South Korea’s SK Hynix and Samsung both plunged over 13%. (Semiconductor stocks recovered by Friday, however, with strong earnings from Microsoft and Amazon reigniting optimism over AI spending.)

Experts like Chen Gang, the deputy director and senior research fellow at NUS East Asian Institute, are positive that this momentum will lead to long-term gains for Chinese chipmakers. 

“We should not underestimate the pace at which Chinese companies can catch up to top global manufacturers,” Chen says. “Companies like CXMT and YMTC can leverage China’s massive capital market and governmental support to expand their scales of production and research at much faster speeds than their foreign peers.”

Last Monday, The Information reported that an unnamed Chinese company has started manufacturing an immersion deep ultraviolet lithography (DUV) machine. These machines etch circuit patterns onto silicon wafers, a critical part in the process of producing semiconductors, and are primarily made by Dutch manufacturer ASML.

China has long tried to make a lithography machine that could be competitive with non-Chinese offerings, as part of a broader effort to build its own semiconductor industry. This drive has taken on greater intensity in recent years in response to U.S. export controls barring the sale of chips and chipmaking equipment to China.

“The combination of government-led AI investment, mandates for local tech companies to tap domestic memory suppliers and rising demand from foreign firms like Apple will create a self-reinforcing cycle helping Chinese chip companies to move up the semiconductor value chain,” concludes Kong of NUS, though he admits the negative impact from geopolitics and U.S.-China relations will “always be a drag”.

Investors, on the other hand, will get another chance to bet on China’s semiconductor sector. Yangtze Memory Technologies Corporation (YMTC) is now in the pre-IPO process for a listing on Shanghai’s stock exchange.