Hedge Fund Manager Predicts SMIC Will Overtake TSMC, Outperforming 97% of Industry Peers

This content is for informational purposes only and does not constitute investment advice. The author holds no positions in any of the referenced stocks.

The Challenging Landscape for SMIC

China’s leading semiconductor manufacturer, Semiconductor Manufacturing International Corporation (SMIC), faces formidable challenges in its quest to compete with industry titan TSMC (Taiwan Semiconductor Manufacturing Company). Yet, hedge fund titan Wong Kok Hoi posits an optimistic outlook for SMIC, suggesting that it could eventually close the gap with TSMC’s substantial market capitalization.

Hedge fund manager who has outperformed ~97% of peers over the last 3 years has a very bold call/prediction for Chinese semiconductor company SMIC. Think TSMC.

Stock’s one of their top holdings. Here’s the call. pic.twitter.com/LKg9igbYEh

— David Ingles (@DavidInglesTV) January 7, 2025

Factors Supporting Wong’s Positivity on SMIC

In a thorough discussion with Bloomberg TV, Wong, the founder and co-Chief Investment Officer of APS Asset Management, articulated compelling reasons that could pave the way for SMIC’s growth. He acknowledged the stark contrast in market valuations—TSMC at approximately $1 trillion versus SMIC’s roughly $50 billion—but emphasized the potential for SMIC to reach equivalent status.

Key Strengths of SMIC

Significant Investment Capabilities: Wong observes that chip manufacturing is heavily reliant on capital expenditure (CapEx), often amounting to over $10 billion per foundry. He believes SMIC not only has access to this capital but is also buoyed by the support of the Chinese government.
Abundance of Engineering Talent: Highlighting China’s educational prowess, Wong mentions the annual production of 5 million engineering graduates, suggesting a robust talent pool for supporting SMIC’s ambitions.
Extensive Domestic Market: Wong notes that SMIC benefits from China’s sizable domestic market, which lessens the need to penetrate Western markets for scaling operations.
Pursuit of Technological Independence: While he recognizes the current limitations due to lack of access to ASML’s EUV lithography machines, Wong expresses that the development of an indigenous solution by a Chinese entity could drastically shift the competitive landscape.

Long-Term Outlook and Current Hurdles

Wong acknowledges that his projection for SMIC to achieve this milestone is not immediate and relies on a longer-term horizon. However, challenges abound, particularly as recent reports indicate that SMIC may not move beyond the aging 7nm production node until at least 2026—hampered by stringent U.S. export controls.

Technological Innovations and Competition

In stark contrast, TSMC continues to innovate, as evidenced by a recent collaboration with NVIDIA, leading to the development of an experimental photonics-based chip prototype. This new technology utilizes silicon photonics, which employs light in the infrared spectrum for data transfer, thus providing significantly increased bandwidth while consuming considerably less power compared to traditional semiconductor architectures. This advancement illustrates a promising potential to overcome limitations imposed by Moore’s Law.

China’s Counter-Push in Silicon Photonics

China is not standing still. The nation has begun to explore silicon photonics as a means of technological independence. The JFS Laboratory has recently reported breakthroughs, including the successful integration of a laser source with a silicon-based chip, marking progress in China’s opto-electronics sector.

As these developments unfold, the financial community and industry stakeholders will be watching closely to see if Wong’s bullish thesis on SMIC materializes amidst an ever-evolving landscape of semiconductor technology.

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