China’s semiconductor equipment industry is heading into the first-half earnings season under intense scrutiny, as a broad stock rally turns one of the tech sector’s least visible niches into a crowded investor trade. The rally has swept across makers of etching, thin-film deposition, cleaning and testing machines, among others, reflecting bets that China’s next round of chip spending will benefit a wider group of domestic suppliers. Shares of Naura Technology Group have soared more than 70 per cent this year, while rivals Advanced Micro-Fabrication Equipment (Amec), Piotech and Hwatsing Technology have more than doubled. Other listed suppliers, including Kingsemi, Hangzhou Changchuan Technology, Accotest, Skyverse Technology and Wuhan Jingce Electronic Group, have also been swept up in the enthusiasm. The question now is whether earnings results can justify the sharp re-ratings. Investors want proof that memory-chip expansion, the shift to advanced packaging and Beijing’s self-reliance push are translating into hard orders, driving revenue growth and sustainable margins. A group of 14 major Chinese chip equipment firms tracked by Soochow Securities recorded combined revenues of 90 billion yuan (US$13.1 billion) in 2025, up 35 per cent year on year. First-quarter revenue for 2026 rose 32 per cent to 21.78 billion yuan, while combined net profits surged 61 per cent in the same period. The rally is driven partly by a global boom in semiconductor memory, accelerated by AI servers that have tightened supplies of DRAM, NAND and high-bandwidth memory (HBM). Huatai Securities expected global memory capital expenditures to rise 150 per cent from 2025 to US$193.7 billion in 2028, lifting demand for thin-film deposition, etching and advanced bonding tools. In China, capacity expansion plans at DRAM manufacturer ChangXin Memory Technologies and NAND producer Yangtze Memory Technologies – both eyeing public listings – are fuelling expectations of a multi-year order cycle for local tool suppliers. Growth is also being driven by advanced logic and packaging, where more complex chip structures require intensive etching and deposition. At the same time, AI chip demand is boosting advanced chip packaging capacity, lifting sales for wafer thinning, bonding and testing equipment. Huatai said foundry capital expenditures could rise 91 per cent from 2025 to 2028, with advanced logic and packaging becoming another major equipment growth line. Supporting these technical and market drivers is accelerated localisation. Years of tightening US, Dutch and Japanese tech export controls have made chip tool security a strategic priority for Beijing. While China’s overall chip equipment localisation rate has risen to the low-20-per-cent range, according to Soochow, gaps remain in lithography, metrology, coating and ion implantation, leaving significant room for domestic growth. Corporate updates reflect this momentum, alongside growing pains. ACM Research Shanghai, a wafer fabrication equipment manufacturer, reported last month that its first-quarter new orders rose 65 per cent year on year, driven by electroplating tools used in 3D packaging. Naura, the country’s heavyweight tool maker, noted in May that demand from logic, memory and advanced packaging clients remained strong, predicting elevated capital expenditure in the Chinese industry through 2027. However, while Naura’s 2025 revenue rose 30.85 per cent and its integrated circuit equipment revenue grew over 50 per cent, its net profit dipped 1.77 per cent as it poured money into research and development (R&D), expanded headcount and absorbed validation costs for new products. This highlights a broader industry trend where fast-rising revenues are colliding with margin pressures. Across the 14 companies tracked by Soochow, gross margins dipped slightly in early 2026 as R&D remained the single largest expense. Chinese suppliers are transitioning from single-product breakthroughs to platform-scale competition, using internal development acquisitions to cover more process steps. Amec is buying an over 64 per cent stake in Hangzhou Zhongsi, while Naura and Piotech have absorbed smaller domestic peers. Still, analysts urge caution. Leslie Wu, CEO of semiconductor research firm RHCC, said market expectations may not be realistic when it came to capacity expansion. “Capacity cannot simply be extrapolated in a straight line,” Wu wrote in a recent note, pointing out that land supply, fab construction, equipment delivery and production ramp-up remained key constraints to turning hype into immediate revenue.