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Investing.com -- Chinese semiconductor stocks rallied Friday on growing optimism that more of the country’s chip demand will be met domestically.
Shares of companies across the semiconductor supply chain surged in both Hong Kong and mainland markets, fueled by speculation that Nvidia (NASDAQ:NVDA) may halt production of its H20 chip in China. Such a move could open the door for local players to expand their share of the market.
Semiconductor Manufacturing International Corp (HK:0981), China’s top contract chipmaker, closed 10% higher in Hong Kong trading, while its smaller rival Hua Hong Semiconductor Ltd (HK:1347) surged nearly 18%.
In Shanghai, Cambricon Technologies Corp (SS:688256) and Hygon Information Technology (SS:688041) both hit the 20% daily limit. Cambricon is viewed as a potential challenger to Nvidia in the Chinese AI chip market.
Meanwhile, Nvidia shares slipped 1.4% in premarket trading Friday.
The Information reported Thursday that Nvidia had asked some component suppliers to stop producing the H20.
“We constantly manage our supply chain to address market conditions,” an Nvidia spokesperson said in response.
Chinese regulators summoned Nvidia officials in late July over alleged “backdoor” risks tied to the H20, according to an official notice. The Wall Street Journal later reported that authorities had instructed major Chinese customers not to purchase the chip until the review was complete.
“The absence of H20 would create ‘a void for domestic chipmakers to fill,’” Morningstar analyst Phelix Lee said, the WSJ reported. He added that both foundries like SMIC and chip designers such as Cambricon could gain more government backing as Beijing prioritizes replacing advanced U.S.-made chips.
Separately, Bernstein analyst Qingyuan Lin noted that if demand holds, “local fabs can increase capacity despite low yields.”
Earlier in August, regulators asked leading AI firms, including Tencent (HK:0700) and ByteDance to justify their purchases of H20 chips, raising further concerns about security.
The H20, developed to comply with Biden-era export controls, has become one of the most sought-after processors among Chinese AI developers. Sales were restricted earlier this year under U.S. rules but resumed in late July after trade tensions eased.
Since then, Beijing has increased scrutiny of Nvidia, with the Financial Times reporting that the pressure partly stemmed from comments by U.S. officials that Chinese authorities viewed as insulting.
Officials in Beijing have also warned that Nvidia’s chips could contain remote control features and pose national security risks—claims Nvidia has consistently denied.