SMIC Set to Compete with TSMC’s ‘Trillion Dollar’ Market Capitalization, According to Hedge Fund Executive

This article does not constitute investment advice. The author does not hold any positions in the stocks referenced herein.

Potential Shift in Semiconductor Market: SMIC vs. TSMC

According to Wong Kok Hoi, founder and chief investment officer of APS Asset Management, China’s largest chip manufacturer, the Semiconductor Manufacturing International Corporation (SMIC), could eventually match the market capitalization of Taiwan Semiconductor Manufacturing Company (TSMC). TSMC currently stands as the most prominent and technologically advanced chip manufacturer globally, serving major tech giants that rely on its cutting-edge manufacturing processes.

Despite facing challenges in mastering the 7-nanometer chip manufacturing due to sanctions that have limited access to advanced EUV lithography equipment from ASML, Wong remains optimistic about SMIC’s potential. He believes that China’s intellectual capital and abundant resources could enable SMIC to operate efficiently without depending on Western clientele.

China’s Semiconductor Landscape: Growing Independence

As TSMC continues to forge lucrative partnerships with leading technology companies—reflected in its staggering market capitalization of approximately $841 billion—its influence on the semiconductor sector cannot be overstated. Companies like Apple, NVIDIA, and AMD benefit immensely from TSMC’s advanced chip technologies. Notably, TSMC’s stock prices have surged by 103% over the past year, driven primarily by the burgeoning demand linked to the artificial intelligence boom.

Conversely, the importance of SMIC has grown in the context of U.S. trade restrictions on TSMC, particularly impacting its ability to supply chips to Huawei. SMIC has filled the void as the sole domestic entity able to meet Huawei’s substantial chip demands, albeit limited to older 7-nanometer technology. This limitation has hindered Huawei’s competitiveness against brands like Apple in the smartphone market.

Future Prospects: Closing the Gap

During a recent appearance on Bloomberg’s China Show, Wong emphasized TSMC’s unrivaled status in the foundry market, stating that it is “the best foundry in the world, without doubt.”Despite TSMC’s high valuation exceeding a trillion dollars, Wong suggested that SMIC’s current market valuation of approximately $50 billion indicates a significant disparity. However, he expressed confidence that “over time, SMIC will catch up.”

Wong attributes this optimism to several critical factors that contribute to SMIC’s potential growth. He noted that achieving success in technology requires substantial capital investments, a domain where SMIC is equipped—with adequate financial resources and robust backing from the Chinese government. Moreover, with over five million graduates emerging from China’s educational institutions annually, the workforce available to SMIC is considerable.

Additionally, China’s extensive domestic market reduces SMIC’s reliance on U.S. customers, providing ample opportunities for profitable business operations within its borders. Wong believes these elements will contribute to narrowing the competitive gap between SMIC and TSMC.

Looking ahead, Wong posits that advancements in domestic EUV equipment development will be a game-changer. He speculates that once a Chinese entity successfully creates its own EUV lithography technology, the semiconductor landscape in China will undergo a fundamental transformation. Such a breakthrough could potentially lead to significant repercussions for U.S. semiconductor companies, as Chinese firms may pivot toward internal suppliers, thus sidelining Western companies.

In conclusion, Wong forecasts that within three years of this technological milestone, many U.S. semiconductor firms could find themselves in serious trouble due to a loss of business to competitive Chinese manufacturers.

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