Amid rapid AI development, semiconductors—the foundation of AI computing power and a core pillar of the digital economy—present critical questions for investors: how to identify investment opportunities, discern long-term logic, and grasp future trends.
Recently, Southern Fund's "Beyond Value" series featured a professional dialogue between Zheng Xiaoxi, portfolio manager of products like the Southern Information Innovation Mix Fund who has deep expertise in semiconductors, and tech blogger Dong Shimin ("Research by Dong Zhidao"). They provided an in-depth analysis of the "changes and constants" in the semiconductor industry for 2026.
Having navigated three market cycles and focused on the semiconductor sector for years, Zheng Xiaoxi adheres to industrial trend investing, generating alpha through research. Utilizing a macro-meso-micro three-dimensional investment research framework, she clearly outlines the development trajectory and investment logic of the semiconductor industry.
"Semiconductors are currently in an upward cycle. Global semiconductor chip sales have maintained strong growth since 2024, and 2026 marks the inaugural year for domestic AI infrastructure investment, providing robust demand-side support. Concurrently, clear event drivers include rising memory chip prices and domestic memory capacity expansion. Overall, semiconductor self-sufficiency represents a high-quality investment direction," Zheng Xiaoxi stated.
**This Upcycle's Duration and Magnitude May Exceed Historical Levels**
According to data from the Semiconductor Industry Association (SIA) and World Semiconductor Trade Statistics (WSTS), global semiconductor sales reached $791.7 billion in 2025, a year-on-year increase of 25.6%. Sales are projected to exceed $1 trillion in 2026, with a growth rate of approximately 26%, marking the third consecutive year of high growth.
Zheng Xiaoxi pointed out that, historically, the global semiconductor industry experiences a complete cycle roughly every 3-5 years, typically characterized by 2.5 years of upturn and 1.5 years of downturn. However, the current cycle, which began its upturn in 2024, is driven by factors such as AI technological innovation and accelerated domestic substitution. Its length and magnitude are expected to surpass historical norms.
"The core momentum sustaining the semiconductor industry's upward cycle lies in AI's pervasive integration as a foundational technology across various sectors, significantly increasing the 'chip intensity' of entire industries. The resulting demand pull for semiconductor chips is unprecedented across historical cycles," she further elaborated.
Addressing market discussions on an "AI bubble," Zheng Xiaoxi responded clearly: the domestic AI sector is far from a bubble stage. The period from 2023 to 2025 was a phase of R&D investment for domestic advanced semiconductor processes. Since 2026, AI infrastructure like semiconductor chips has entered mass production and scaling phases, officially commencing substantial domestic AI investment. 2026 is the inaugural year for domestic AI computing infrastructure investment, with capital expenditures expected to be concentrated. Marked by leading memory manufacturers going public and expanding capacity, subsequent AI investment acceleration is anticipated.
She emphasized that semiconductors are the core infrastructure of the tech industry, serving downstream sectors including home appliances, automobiles, and humanoid robots across dozens of fields, with varying cyclical timing across end markets. Even if the AI segment experiences periodic fluctuations, areas like automotive chips and specialized equipment chips are emerging from inventory troughs, presenting ongoing structural opportunities on the left side of the curve.
**Firmly Bullish on the Semiconductor Self-Sufficiency Theme**
At this critical juncture in 2026, Zheng Xiaoxi remains firmly optimistic about the semiconductor self-sufficiency theme, with clear core logic: First, the global semiconductor industry is in an upward cycle, with AI driving sustained high demand growth. Second, diverse downstream applications, including AI Agents, humanoid robots, and on-device AI, continue to drive upstream infrastructure investment. Third, rising domestic memory chip prices and capacity expansion by leading memory manufacturers serve as significant industry catalysts, supporting optimistic capital expenditure trends.
Currently, domestic semiconductor localization is advancing from the design segment into deeper waters upstream, including equipment, components, and materials. Latest statistics show the domestic equipment localization rate increased from 15% in 2024 to 35% in early 2026, with shares in etching equipment and thin-film deposition equipment exceeding 40%, accelerating substitution in mature process nodes.
"In the chip design field, localization rates for mid-to-low-end and relatively high-end segments are already high, with impressive export growth rates. Segments like equipment and materials are transitioning from low to high localization rates. For core bottleneck areas like lithography machines, key breakthroughs are expected during the '15th Five-Year Plan' period," Zheng Xiaoxi noted. She added that competitive landscapes vary significantly across segments: the semiconductor equipment industry has a stable structure with leading firms maintaining long-term advantages; the chip design field is dynamic with innovation, continually seeing new domestic players in computing chips, releasing ongoing growth opportunities.
Regarding the challenge of balancing valuation and growth in semiconductor investing, Zheng Xiaoxi views valuation as a "toolbox" containing various "tools" like P/E, P/S, R&D investment-adjusted net profit, and DCF models. These tools should be applied according to different industry life cycles, company characteristics, and market environments, rather than using a single metric.
She also mentioned that semiconductor companies are currently in a phase of concentrated R&D investment release, where traditional valuation methods might appear elevated. However, considering long-term growth potential and benefits from import substitution, high-quality targets still hold allocation value. As a growth-style tech fund manager, she places greater emphasis on a company's core team, technological barriers, and growth potential, de-emphasizing short-term traditional valuation weights, aiming to accompany excellent companies through cycles with a long-term perspective to share in industrial growth dividends.
Overall, as a critical national industry, semiconductors possess both strategic value and growth attributes. Driven by the dual resonance of AI innovation and domestic substitution, the long-term opportunities in the semiconductor sector for 2026 are clear.
Risk Warning: Fund investment carries risks. The views expressed are for reference only and do not constitute investment advice.
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