<div id="readability-page-1"><p>(Updated - May 18, 2026 8:20 AM EDT)<br/>Citi upgraded a major Chinese semiconductor company to Buy on Monday, citing accelerating domestic chip localization, rising AI-related demand, and improving pricing power as the company heads into a stronger second quarter.The bank upgraded SMIC, China’s largest chipmaker, after the company reported first-quarter revenue of $2.5 billion, up 12% year-on-year and 1% sequentially, with gross margin improving to 20.1% and utilization rates remaining high at 93.1%.While the result beat Citi’s own estimates, it came in slightly below broader consensus expectations.“The company outperformed normal seasonality as domestic substitution, recovering consumer electronics demand, and stronger industrial and automotive demand supported growth,” Citi analysts said.Profit attributable to shareholders came in at $197.4 million for the quarter, also missing the consensus estimate.China’s share of SMIC’s revenue rose to 88.9%, pointing to an &#34;accelerating localization trend,” the bank noted.The company guided second-quarter revenue growth of 14–16% sequentially, with gross margin of 20–22%, both ahead of market expectations. The outlook is supported by improving average selling prices (ASPs), a better product mix, and stronger order visibility.&#34;AI-related demand is increasing,&#34; Citi noted, adding that SMIC is also seeing upside in power management chips, specialty memory, display driver ICs, and automotive chips.The company said it has grown more “optimistic” about its overall operations this year compared to the December quarter, citing robust customer demand and existing orders.Mature nodes above 28nm remain the core profit driver, though SMIC continues to advance its 14nm and selective 7nm technology.At the same time, capital expenditure moderated sequentially, which Citi viewed positively as a sign of more disciplined expansion and improving cash flow quality, while SMIC maintains investment in specialty and mature-node capacity.&#34;Given improving UTR, pricing and solid demand, we upgrade SMIC to Buy,&#34; the analysts wrote.As China’s most advanced chip foundry, SMIC sits at the center of Beijing’s drive for technological self-sufficiency, a push made more urgent by U.S. restrictions on access to advanced semiconductors used in artificial intelligence. That policy backdrop has positioned the company to benefit as Chinese firms increasingly turn to domestic suppliers.Still, the company faces headwinds, including the ongoing memory supply crunch and broader geopolitical tensions. Those concerns contributed to a nearly 30% decline in SMIC’s shares in the first quarter, as investors also fretted over the costs and complexity of scaling advanced chip capacity.</p></div>

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<p>Citi upgraded SMIC, China's largest chipmaker, to Buy, citing strong domestic chip localization and rising AI demand. SMIC reported Q1 revenue of $2.5 billion, up 12% year-on-year, with a gross margin of 20.1%. The company expects Q2 revenue growth of 14-16% and improved margins. Despite challenges like a memory supply crunch and geopolitical tensions, SMIC is positioned to benefit from China's push for technological self-sufficiency.</p>

- Citi upgraded SMIC, China's largest semiconductor company, to Buy, citing strong domestic chip localization, rising AI demand, and improving pricing power.  
- The company reported a first-quarter revenue of $2.5 billion, up 12% year-on-year, with an improved gross margin of 20.1%.  
- SMIC's outlook for the second quarter indicates revenue growth of 14–16% sequentially, bolstered by increasing demand for various chip types amid challenges such as geopolitical tensions and a memory supply crunch.

Buy this China chip stock, Citi says