HarmonyOS Ecosystem Breakthrough and the Rise of Domestic AI Chips: Structural Opportunities in China's IT Hardware Sector

Bottom Line

This week, China's IT hardware industry has presented two core signals: the cumulative number of HarmonyOS ecosystem devices has exceeded 1.3 billion, domestic AI chip market share has surpassed 40%, and Huawei's chip shipments are approaching one million. Investors should strategically increase allocations to Huawei ecosystem enterprises (HarmonyOS partners, intelligent driving chip suppliers) and leading domestic semiconductor equipment manufacturers, while also focusing on the demand for edge computing and robot components driven by the shift of AI from conversational to physical hardware.

Key Developments

1. HarmonyOS Ecosystem Devices Exceed 1.3 Billion, BYD Launches 4nm Intelligent Driving Chip — As of May 29, the cumulative number of HarmonyOS ecosystem devices has surpassed 1.3 billion, marking the large-scale implementation of Huawei's operating system in the smart terminal field; on the same day, BYD launched a 4nm intelligent driving chip, demonstrating a breakthrough in domestic chips for high-performance automotive-grade computing. Portfolio implication: The expanding base of HarmonyOS ecosystem devices will drive replacement and incremental demand for IT hardware (modules, sensors, communication chips). BYD's 4nm chip is expected to accelerate the substitution of domestic intelligent driving supply chains. It is recommended to increase holdings in Huawei Kunpeng/Shengteng ecosystem and BYD semiconductor cooperation targets.

2. Domestic AI Chips Form a Tripartite Landscape: Market Share Exceeds 40%, Huawei Shipments Near One Million — As of the second half of 2025, the market share of domestic AI chips has exceeded 40%, Huawei's AI chip shipments have approached one million units, and Cambricon has achieved its first profitability. Portfolio implication: The rapid increase in localization rates means that investments in domestic computing infrastructure will transition from concept to performance realization. It is recommended to focus on the Huawei Shengteng industrial chain (packaging, cooling, power management) and the already profitable Cambricon and its ecosystem partners.

3. BEYOND Expo 2026 Focuses on AI-Physical World Integration, Highlighting China's Hardware Manufacturing Advantages — The BEYOND Expo in Macau from May 27-30, 2026, themed "AI: Digital and Physical Symbiosis," will feature over 1,200 exhibitors, showcasing China's full-stack capabilities in chips, hardware, and manufacturing infrastructure. Portfolio implication: The expo will highlight that core bottlenecks for AI implementation in the physical world (hardware interfaces, real-time control) are being gradually overcome. It is recommended to focus on niche tracks such as robot joint modules, industrial edge AI boxes, and AR/VR optical components.

4. NVIDIA PC Chip N1X Debuts with 20 Arm Cores — NVIDIA's PC chip N1X, developed in collaboration with MediaTek, will debut at Computex Taipei, first appearing in Dell and Microsoft Surface devices. It integrates 20 Arm cores, marking NVIDIA's expansion from GPU to CPU architecture. Portfolio implication: The accelerated maturation of the Arm PC ecosystem will challenge the X86 landscape, benefiting the Arm server chip ecosystem (Huawei Kunpeng, Phytium). However, caution is needed as NVIDIA may squeeze the consumer market space for domestic AI chips through chip bundling.

5. AI Moves from Chat to Physical: Alibaba Launches AI Shop Assistant, Sige Releases SigenAgent Integrated with Energy Hardware — Several Chinese companies have launched products embedding AI into physical hardware and workflows, such as Alibaba's AI Shop Assistant (e-commerce service) and Sige's SigenAgent (energy scheduling). Portfolio implication: This trend will drive demand for MCUs, sensors, actuators, and low-power wireless modules. It is recommended to prioritize system-level suppliers with "AI + Hardware" integration capabilities (e.g., smart home, industrial control).

Sector Pulse

Risk Watch

• Fragmentation Risk of Domestic AI Chip Ecosystem — Solutions from Huawei, Cambricon, and Hygon are incompatible with each other, leading to high migration costs for downstream customers, which may limit the further increase of domestic chip market share from 40%. Probability: Medium. Impact: High.

• NVIDIA Arm PC Chips Impacting Domestic Server Chip Market — If the N1X achieves ecosystem lock-in in the PC and edge server space, it may squeeze the promotion space for domestic Arm chips (e.g., Kunpeng) in the Xinchuang (domestic IT infrastructure) sector. Probability: Medium. Impact: Medium.

• Risk of Peaking Semiconductor Equipment Expansion Cycle — Although Applied Materials' CEO claims the industry is entering its strongest period, global capital expenditure has been growing for two consecutive quarters. If AI demand falls short of expectations, Chinese equipment companies may face order fluctuations. Probability: Low. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• Detailed performance parameters and media reviews of NVIDIA N1X after the official opening of Computex Taipei
• Subsequent monthly incremental device data for the HarmonyOS ecosystem (whether it reaches 20 million units per month)
• Announcements of vehicle models adopting BYD's 4nm intelligent driving chip and guidance for mass production pace in 2027
• Changes in the STAR Market's review of refinancing for AI chip companies

Positioning consideration: It is recommended to maintain an overweight position in Huawei ecosystem semiconductor and system integrators, leveraging the certainty of increasing domestic AI chip penetration to hedge against weak consumer electronics demand, while reducing holdings in foundry-related targets with high NVIDIA correlation to guard against the risk of Arm PC substitution.