China AI Hardware Stocks Face Earnings Test After Sharp Selloff
nashnova research
China's AI hardware sector has halved from its highs, and a wave of quarterly earnings this week will determine whether profits can justify current valuations — a make-or-break moment for the sector's attempt to find a floor.
What is the core tension after such a steep drop?
Optical-module leader Innolight and PCB maker Shenghong Tech have both fallen more than 50% from their year-to-date peaks. Both report on Thursday.
The STAR 50 Index P/E ratio has halved in months, yet it remains roughly twice that of the Nasdaq 100. This means → even after a 50% drawdown, Chinese tech trades at double the U.S. benchmark — the market demands faster earnings growth to justify the premium.
Meanwhile, STAR 50 earnings upgrades have been notably slower than the Nasdaq 100's. In plain terms = valuations are pricier, but the earnings catch-up is slower — that gap is the root of the sector's sustained pressure.
Can earnings turn the tide?
Xiang Xiaotian, managing director at Shanghai Chengzhou Investment Management, says that after such a deep selloff, "earnings may not be enough to restore market confidence."
But he adds: if earnings jump sharply while prices keep falling, valuations become more attractive and "could help the stock find a bottom." This means → strong numbers may not trigger an immediate rally, but they can draw a floor — a price level where the valuation starts to make sense.
Will AI capex get cut?
The fear: if global big tech slashes AI capital spending, hardware suppliers lose orders directly.
Yet Accelink Technologies and other optical-module firms issued business updates last week, emphasizing a positive demand outlook for next year.
Bloomberg Intelligence analyst Sean Chen notes: "There is no material near-term capex risk; optical-module makers' order visibility remains solid." This means → the capex-cut scare targets the medium-to-long term; near-term order books have not loosened.
What signals have early results sent?
Cambricon Technology posted strong earnings that beat expectations, but capacity constraints held revenue below forecasts. In plain terms = the chips command good prices, but the company cannot produce enough to meet demand.
CXMT (ChangXin Memory Technologies) delivered disappointing preliminary profit figures. Morningstar analyst Yu Jingjie points to rising costs and margin compression on more advanced products, plus "slowing pricing growth."
She projects the memory cycle will peak in 2028, then enter a sharp downturn in 2029 as supply ramps aggressively. This reflects a clear cyclical turning point already penciled in two to three years out — memory is not a one-way-up trade.
What is the outlook for foundries and optical comms?
Kenny Ng, strategist at China Everbright Securities International, says AI demand is expected to sustain strong growth through 2027, with orders in optical comms, PCBs, and data centers remaining solid.
On the foundry side, Morningstar analyst Li Feili notes firms are seeking to raise prices ahead of 2027, driving gross margins higher as rising utilization spreads fixed costs over more units. In plain terms = the foundry playbook is "higher prices + fuller fabs" — both levers are moving in the right direction.
SMIC and Hua Hong Semiconductor are expected to report next month, providing a more direct read on the foundry segment.
What is the real test of this earnings season?
The core question is singular: can earnings data provide enough fundamental support to make valuations attractive at current levels?
If the answer is yes, the sector can build a floor around that earnings baseline. If no, uncertainty over the capex outlook will continue to cap the recovery.
This reflects a market no longer trading on "is the AI story good?" but on "has the price of a good story come back to a reasonable range?"
市场有风险，内容仅供研究参考，不构成投资建议。