China Information Technology Weekly: AI Hardware Race Accelerates Amidst Storage Cycle and Policy Game

Bottom Line

The biggest signal this week is the accelerated penetration of AI computing from the cloud to the edge (PC/edge), coupled with breakthroughs in domestic semiconductor self-sufficiency and increased policy support. The hardware industry chain faces a structural revaluation. It is recommended that investors overweight domestic AI chip leaders (Huawei, Cambricon, Hygon) and Arm architecture-related targets. However, given the backdrop of storage price hikes and the US-China technology rivalry, position sizes should be controlled, prioritizing hard-tech companies with reasonable valuations and strong order visibility.

Key Developments

1. NVIDIA Partners with MediaTek to Launch Arm PC Chip, Signaling Clear Shift from x86 to Arm Architecture — At Computex, NVIDIA, together with MediaTek and Microsoft, unveiled the N1X (RTX Spark) Arm-based PC chip, marking a substantive step in the PC industry's transition from x86 to Arm. Portfolio implication: Focus on domestic Arm server/PC chip design companies (e.g., Phytium, Kunpeng) and the OSAT/advanced packaging segments. Arm PC shipments are projected to exceed 50 million units by 2027; in the short term, consider increasing allocations to advanced packaging targets such as Tongfu Microelectronics and JCET.

2. Domestic AI Chip Trio Solidifies: Huawei Nears One Million Shipments, Cambricon Achieves First Profit, Hygon Revenue Breaks Ten Billion — In the second half of 2025, the domestic AI chip market share exceeded 40%. Huawei Hisilicon's Ascend series shipments approached one million units, Cambricon reached breakeven, and Hygon Information's revenue surpassed RMB 10 billion (approx. USD 1.38 billion). The competitive focus is shifting from computing power to ecosystem. Portfolio implication: Domestic AI chips have moved from the "viable alternative" stage to the "good to use" stage. It is recommended to increase holdings in Huawei ecosystem partners with proprietary software stacks, while being cautious of low-end AI chip companies relying solely on foundry services. Note the sustainability of Cambricon's profitability and the customer concentration risk for Hygon.

3. Memory Chips Face Rare Cyclical Shift in 20 Years, Intensifying Cost Pressure on Smartphones/Laptops — Global memory chip prices continue to rise. In Q1 2026, Xiaomi's smartphone revenue declined 12.5% YoY. BOE indicated that memory price hikes are suppressing demand for laptops and smartphones, though the impact on TVs is limited. Portfolio implication: This is a short-term negative for the consumer electronics supply chain. It is recommended to reduce holdings in smartphone/PC OEMs and mid-to-low-end panel makers. However, memory price increases benefit domestic memory manufacturers (YMTC, CXMT) and module makers (Longsys, Biwin Storage), providing opportunities to buy on dips.

4. Tencent Cloud Announces Price Cuts of Up to 97.5% for DeepSeek-V4 Series Models, AI Inference Costs Plunge — Effective June 3, Tencent Cloud significantly reduced the API call prices for its DeepSeek-V4 model, aiming to capture the enterprise AI application market. This is expected to accelerate the large-scale deployment of AI agents. Portfolio implication: Cloud services are entering a "volume over price" phase, which benefits AI application/software layer companies (e.g., medical AI, fintech). However, it may create short-term pricing pressure expectations for cloud infrastructure (servers/optical modules). It is recommended to watch new AI medical targets like Neusoft Ruixin.

5. US Passes CHIPS Security Act and MATCH Act, Restricting China's Access to Hardware Technology — New bills enacted between March and April 2026 tighten export controls on chip equipment/EDA to China. However, the domestic substitution of China's computing chip ecosystem is accelerating, with increased self-sufficiency in HPC/data center chips. Portfolio implication: The legislation accelerates the domestic IT infrastructure (Xinchuang) substitution process, benefiting the Huawei Kunpeng/Ascend ecosystem, domestic EDA software, and leading semiconductor equipment makers. At the same time, caution is needed for some design companies (e.g., AI chip startups) that rely on overseas IP. It is recommended to concentrate allocations on targets with high certainty in self-sufficiency and controllability.

Sector Pulse

Risk Watch

• Escalation Risk of US Export Controls — After the CHIPS Security Act and MATCH Act take effect, if the blockade on equipment/EDA is further expanded, it could hinder the ramp-up of domestic advanced process capacity and affect tape-outs for chip design companies. Probability: Medium. Impact: High.
• Memory Price Hikes Erode Downstream Profits — Sustained high memory prices will compress gross margins for terminal manufacturers like smartphones and laptops. If price increases pass through to servers/cloud computing, it could dampen the pace of AI capital expenditure. Probability: High. Impact: Medium.
• AI Model Price War Compresses Cloud Service Profits — Tencent Cloud's price cuts may trigger follow-up actions from Alibaba Cloud, Huawei Cloud, etc., putting pressure on the overall industry profit margins, though this is beneficial for long-term ecosystem prosperity. Probability: Medium. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• Production timeline and OEM customer adoption progress for the NVIDIA N1X chip (RTX Spark)
• Whether YMTC/CXMT will issue new price hike letters in June
• Details of the State Council's "15th Five-Year Plan" special plan for next-generation information technology (expected before mid-June)
• Tencent Cloud's Q2 cloud business revenue growth and customer count changes following the price cuts

Positioning consideration: Maintain an overweight position in AI chips/memory/advanced packaging in the short term, while appropriately hedging the consumer electronics chain. Pay attention to the "15th Five-Year Plan" IT policy catalyst expected in mid-June, and consider early positioning in Xinchuang software and industrial AI diagnostic targets.