Goldman Sachs raises SMIC's target price to 73.1 yuan, driven by AI and foundry-less semiconductor companies expanding the long-term upward trend

Goldman Sachs published a research report indicating that the demand for semiconductor companies in China that design their own chips and outsource to professional foundries (i.e., fabless semiconductor companies) is rising, which is beneficial for the foundry SMIC (00981.HK) as the demand can drive utilization rates and gross margin recovery. Coupled with the company's continued stable capacity expansion and new AI opportunities, the firm is optimistic about SMIC.

Goldman Sachs has given SMIC a "Buy" rating, raising the target price from HKD 63.7 to HKD 73.1, which corresponds to a projected price-to-earnings ratio of 40 times for the fiscal year 2028 (previously 36 times). The firm expects that the short-term upward trend in the third quarter of this year will act as a catalyst, with revenue expected to grow by 5% to 7% quarter-on-quarter, and gross margin expected to be between 18% and 20%.

The firm pointed out that the rise of artificial intelligence is driving demand for AI computing chips, which is expected to strengthen SMIC's long-term growth opportunities. Overall, the firm anticipates a compound annual growth rate of 21% for SMIC's revenue from 2025 to 2029, with gross margin recovering from 21% this year to 28% by 2029. The firm expects that strong growth in AI and fabless semiconductor companies will support SMIC's sales and average prices, raising the revenue forecasts for 2028 and 2029 by 0.4% and 2%, respectively, while also increasing the gross margin forecasts by 0.4 and 0.6 percentage points, thereby driving up the earnings per share estimates for the period by 3% and 7%, respectively