Imagine making more than 62,200% more profit than you did a year ago. That is what Shenzhen Longsys Electronics Co., a memory chipmaker, flagged in its preliminary first-half results. The stock climbed 10% that session, only to surrender all those gains.
Shenzhen Techwinsemi Technology Co. forecast up to 5,600% net income growth. Its shares fell by the daily limit of 10%. Shannon Semiconductor Technology Co. reported over 2,000% earnings growth. Its shares fell by the daily limit of 20%.
The broad index that tracks mainland-listed semiconductor and electronic component makers, the CSI 300 Information Technology Index, now trades at 36 times forward earnings. That is up from 28 times in April.
Get the market news that matters in a five-minute read with Market Briefs, our free daily newsletter
The index rose 80% in the second quarter.
"Investors were already anticipating a strong result," remarked Vey-Sern Ling, a managing director at Union Bancaire Privee, explaining why the market failed to cheer the earnings. According to him, "The performance of China AI stocks is more dependent on investor positioning and expectations than actual fundamentals and earnings."
A tepid rebound in consumer spending has cast doubt on whether such profit leaps can be sustained. Seres Group Co., an automaker, has indicated it expects to post a loss for the first six months as production expenses climbed. Swings in hog prices hurt Muyuan Foods Group Co., a pig farming company. Troubled real estate developer China Vanke Co. forecasts its losses will expand because of thin margins on construction projects and asset write-downs.
In a note, Li Qiusuo and fellow CICC analysts argued that technology stocks may have faced selling pressure due to "factors such as volatility stemming from overseas AI industry developments and fluctuating expectations regarding US interest rate hikes."
William Bratton, who leads Asia-Pacific cash-equity research at BNP Paribas, commented that it is too soon to invest in anticipation of a consumption-driven earnings upturn, saying, "We view it as too early to position ahead of such a recovery."
To provide further context, the recent rally in Chinese tech stocks had already priced in much of the earnings optimism. Many investors had bought in anticipation of a rebound in the AI sector, which meant that even record profits were seen as meeting rather than exceeding expectations. This dynamic is a key reason why shares fell after the announcements, as traders took profits and rebalanced positions.
Market participants will look for statements from AI companies when they release their finalized first-half reports by the end of August, seeking confirmation that higher valuations are warranted. China International Capital Corp. expects that profit growth will remain robust across the AI hardware, computing infrastructure, and upstream supplier sectors, which have benefited from price increases.
Join Market Briefs, our free daily newsletter, for a quick daily rundown of the markets
