China Galaxy Securities: Strong AI Demand Expected to Bring Cycle Reversal for Power Semiconductors

According to the report released by China Galaxy Securities, the overall demand for AI remains strong. Trendforce predicts that the capital expenditure of the world's eight major CSP cloud service providers will increase by 24% year-on-year to USD 520 billion by 2026, driving the demand for computing power chips and creating a broad space for domestic substitution in the storage chip cycle. Domestic storage manufacturers will contribute the main incremental capital expenditure for wafer fabs next year, driving the demand for semiconductor equipment. The energy storage industry is experiencing an upward trend, which is expected to drive the demand for power semiconductors. The main points of China Galaxy Securities are as follows: Analog Chip Design Benefiting from domestic substitution, the demand for domestic analog chips continues to improve. A-share analog chip companies SG Micro, 3PEAK, and Naxin Micro all achieved year-on-year revenue growth in Q3, with 3PEAK's Q3 revenue growth rate reaching 70.29% and Naxin Micro's Q3 revenue growth rate reaching 62.81%. Industry competition remains intense. In Q3, the gross profit margins of SG Micro, 3PEAK, and Naxin Micro changed by -0.11pct/0.26pct/-2.3pct quarter-on-quarter. Digital Chip Design NVIDIA CEO Jensen Huang stated at the GTC conference that NVIDIA has shipped 6 million Blackwell GPUs over the past four quarters, and it is expected that Blackwell and the Rubin chip to be launched next year will generate USD 500 billion in sales over the next five quarters, with overall demand remaining strong. In the storage chip sector, Samsung Electronics' storage chip business revenue reached a historical high in the third quarter; SK Hynix achieved the highest quarterly performance in history. With the innovation of AI technology, demand is beginning to spread to all product areas, driving the upward cycle of storage chips. Integrated Circuit Manufacturing Global leading foundry TSMC stated at its Q3 earnings briefing that the demand for generative AI remains strong, and the company is fully expanding its supply. It is expected that AI-related production capacity will be difficult to meet all demands before 2026, and capital expenditure will remain high over the next two years, with revenue growth expected to exceed capital expenditure growth. Semiconductor Equipment The overall demand for domestic semiconductor equipment is good, with domestic semiconductor equipment manufacturer NAURA achieving revenue of over 10 billion yuan in Q3, setting a new record for single-quarter revenue with a year-on-year growth rate of 38.31%. Zhongwei Company and Tuojing Technology's Q3 revenue growth rates were 50.62% and 124.15%, respectively. In the testing machine sector, Changchuan Technology and Huafeng Measurement and Control achieved significant growth, with Q3 revenue growth rates of 60.04% and 67.21%, respectively. Looking ahead to 2026, domestic storage manufacturers are expected to contribute the main incremental capital expenditure for wafer fabs, which is likely to drive the demand for domestic semiconductor equipment. Risk Warning Risks of technological iteration not meeting expectations; risks of international trade; risks of intensified market competition