Author: Tanner Brown; Source: Barron's

The largest IPO in the A-share market since 2010 is entering an excellent listing window: AI has triggered a shortage of memory chips, causing chip prices to soar, and this industry, known for its boom-bust cycles, is once again reaping huge profits.

Changxin Memory Technologies (CXMT) plans to raise 57.9 billion yuan, approximately US$8.6 billion, on the Shanghai Stock Exchange's STAR Market. If the over-allotment option is fully exercised, the total amount raised could reach up to 66.7 billion yuan, approximately US$9.8 billion.

This offering values ​​Changxin Memory Technologies at approximately US$85 billion, and its shares will begin trading on the Shanghai STAR Market on July 27.

... Another leading Chinese memory chip company, Yangtze Memory Technologies (YMTC), has also entered the formal IPO preparation stage, but has not yet announced a listing timetable. These two companies together mark China's most powerful attempt to enter the global memory chip "small club," while also presenting investors with a dilemma: on the one hand, they can bet on the endless demand for memory chips from AI; on the other hand, the funds raised by these IPOs may fuel overcapacity, thus ending the current boom. Changxin Memory Technologies is a leading Chinese manufacturer of dynamic random access memory (DRAM). DRAM allows computers and servers to read information quickly. Yangtze Memory Technologies produces NAND flash memory, used for long-term storage in smartphones, solid-state drives, and data centers. AI systems have an extremely large demand for both types of memory chips. High-bandwidth memory (HBM, a high-end DRAM packaged with AI processors) is particularly scarce. This allowed Micron Technology, Samsung Electronics, and SK Hynix to raise prices and report soaring profits. The shortage is spreading beyond data centers. Apple has been lobbying the Trump administration to ensure that Changxin Memory is not added to the U.S. Department of Commerce's "Entity List" because Apple wants to use Changxin Memory's chips in devices sold in China. Rising memory costs have already driven up the prices of some MacBooks and iPads. This makes Changxin Memory no longer just a challenger relying on subsidies: it has become a supplier that one of the largest U.S. tech companies may actually need. While Changxin Memory still lags behind industry leaders in high-end products (especially HBM), it is making rapid progress in general-purpose DRAM, with its global market share reaching 7.7% by 2025, ranking fourth globally. The company's first-quarter revenue surged 719% year-on-year to 50.8 billion yuan (approximately $7.1 billion). "Changxin Memory will be one of the greatest IPOs in the history of the A-share market," said Donnie Teng, a semiconductor analyst at Nomura Securities for Greater China, in an interview with Hong Kong media. The funds raised in this IPO will be used for capacity expansion and R&D. For existing suppliers, this is where the risks begin. Memory chips are commodities: shortages cause prices to soar; manufacturers then expand capacity; once supply catches up, prices fall. Backed by state funding and encouraged to replace foreign technology with domestic technology, Chinese manufacturers may be less restrained compared to the three existing giants currently enjoying an upward economic cycle. The impact of Changxin Memory may first be felt in the DRAM sector for personal computers and consumer electronics, rather than in high-end AI memory. Export controls still limit its access to advanced manufacturing equipment, causing it to lag behind Micron and its South Korean competitors in high-end products. But even in the low-end market, the impact is equally profound. If Changxin Memory can meet more of China's own demand, established suppliers will have to compete more fiercely in other markets, potentially shattering the global three-way dominance in the memory industry. Investors already felt this on Wednesday when Micron's stock price fell 8% to $904.28 due to sell-offs related to Changxin Memory's IPO. Micron still controls about 22% of the DRAM market share and remains far ahead in high-bandwidth memory, but Changxin Memory's market share has more than doubled in a year. For most US investors, directly buying Changxin Memory would be difficult. The Shanghai-Hong Kong Stock Connect allows overseas investors to invest in some A-shares, but STAR Market stocks are only open to institutional professional investors, and Changxin Memory may not immediately meet the inclusion criteria after listing. A more feasible path might be through the KraneShares SSE STAR Market 50 ETF, which tracks the 50 largest companies by market capitalization on the STAR Market. Given Changxin Memory's size, it may become an index constituent stock in the future; however, inclusion is not guaranteed and the timing depends on index rules. Various broad-based China semiconductor funds or A-share funds may also add this stock, but foreign investment access rules, fund investment restrictions, and geopolitical risk appetites differ. Geopolitical risks continue to escalate. The U.S. Department of Defense has added Changxin to its list of military-related companies, and Yangtze Memory has been on the Department of Commerce's Entity List since 2022. This week, two U.S. lawmakers urged the White House to introduce new rules: prohibiting U.S. companies from purchasing products from the two manufacturers, adding Changxin to the Entity List, and tightening restrictions on Yangtze Memory. While U.S. Treasury Department rules on foreign investment typically do not restrict the trading of common stock, a specific sanction policy could force funds and index institutions to liquidate their holdings in related stocks. Currently, Micron remains the most direct investment target in the US stock market "betting on a memory chip shortage," and also the company most affected should China alleviate this shortage. The issue isn't whether Changxin Memory can surpass Micron in the short term—it can't. The issue is whether the nearly $10 billion in new financing, the vast domestic market, and potential huge customers like Apple will make China a permanent "fourth pole" in the global memory chip industry, thus determining how long the industry's current profits can be sustained.