The initial public offering of Changxin Technology, a leading Chinese memory chip maker, saw its stock price explode on its first day of trading, surging to a market value that far exceeded two units of Kweichow Moutai. Despite a recent market rout in tech stocks, which saw some semiconductor names cut in half, and regulatory efforts to curb speculative first-day pops, investors piled in. Priced at 49.5 yuan, the stock dipped to 38.11 yuan before rocketing to 55.03 yuan and closing at 49 yuan. The market's memory seems short, with a speculative, gambling-like spirit prevailing among retail investors, who remain vulnerable to sharp reversals.
Just six days prior, a wave of panic selling had swept through the tech sector, prompting state-backed intervention and regulatory measures. Memory chip stocks were the primary trigger for that market tremor. Now, the same sector has produced Changxin's astonishing debut valuation. The company soared from an IPO market cap of 579.2 billion yuan to a closing market value of 3.28 trillion yuan on its first day, making it the new king of the A-share market. This valuation easily surpasses second-place Industrial and Commercial Bank of China's 2.7 trillion yuan and now trails only Tencent's 4.03 trillion Hong Kong dollar market cap in China.
Fundamentally, the story is driven by surging demand for large model training and inference. Global memory giants are aggressively shifting capacity to high-end products like HBM, which is structurally tightening supply for general DRAM and pushing prices higher across the industry. As a pure-play DRAM IDM with full design and manufacturing capabilities, Changxin is uniquely positioned in the A-share market, entering a phase of explosive earnings growth fueled by a cyclical upturn and market share gains. Memory chips are undeniably the hottest segment of the AI supply chain right now.
Benefiting from ever-increasing AI capital expenditures by global tech titans, memory chip prices and product demand are soaring. This has led to massive profit surges for global leaders like SK Hynix, Samsung Electronics, and Micron Technology, as well as for domestic listed companies like Biwin Storage and Shenzhen Longsys Electronics. Brokerages are rapidly revising their earnings forecasts for Changxin. Guojin Securities projects net profits of 151.831 billion yuan, 252.181 billion yuan, and 351.035 billion yuan for 2026, 2027, and 2028, respectively. Northeast Securities, using different valuation models, arrives at target market caps ranging from 2.85 trillion to 4.27 trillion yuan. While these are optimistic projections, they have fueled a relentless rally in memory chip valuations.
The entire memory sector has surged over 320% from September 2024 to early July this year, with names like Longsys and Shenzhen Techwinsemi posting gains of 11x and 21x, respectively. While the long-term outlook for AI is bullish, this staggering profit growth is predicated on an ideal scenario of continuously high AI capex, exploding memory demand, and sustained price increases. The problem is that soaring memory costs are raising the price of consumer electronics and AI computing power. The immense cash burn from massive AI investments is becoming a real concern, and the future profitability of AI giants is facing growing skepticism. This is the core reason for the tech stock correction that began in July.
From its peak on July 1st, the broader semiconductor sector has fallen over 30%, at one point dropping 43.33%. Even memory chip companies with stellar earnings, like Shenzhen Techwinsemi and Biwin Storage, have seen their shares plummet by over 50%, with Longsys also nearly halving. It's important to note that Samsung and SK Hynix, the global DRAM duopoly, have competitive advantages over Changxin. Based on recent half-year profit projections, their forward P/E ratios are only around 6-7x. Domestic memory companies trade at a P/E of 8-10x. Even Changxin's IPO P/E, based on estimated 2026 first-half earnings, was around 5-6x.
Given these comparisons, even accounting for valuation differences between Chinese and US markets, expectations for future valuation growth at Changxin should be tempered. At its current 3.28 trillion yuan valuation, Changxin's P/E is around 33x. This is significantly higher than both its international peers and domestic counterparts, even at their recent cycle peaks. Even optimistic future earnings need to be verified over time, not fully priced in immediately. Otherwise, any shift in sentiment could trigger another sharp market reversal. Furthermore, the memory chip industry lacks the deep technological moats found in semiconductor equipment. Expanding capacity is a capital-intensive, long-cycle process, typically taking 1.5 to 3 years from decision to market.
This supply-side rigidity creates the memory industry's characteristic boom-bust cycle: rising prices lead to expansion, which leads to oversupply and falling prices. Given lingering doubts about the long-term sustainability of AI capex, it is difficult to apply a pure growth stock valuation to AI hardware companies, especially memory chip makers. The cyclical perspective remains relevant. Yet, the logic that sent memory stocks tumbling in July appears to have been cast aside in the exuberance for Changxin. By midday on its first trading day, turnover reached 58.06%, closing at a staggering 66.4%. For context, PetroChina's first-day turnover on its listing was only 51.58%. Data also shows that since 2026, over half of new stocks have fallen more than 50% from their first-day highs, with some dropping over 80%.
While a sustainable bull market for tech stocks is a hopeful goal, investors must be wary of the speculative traps and bubble risks inherent in hot new listings. The risk of repeating the "PetroChina" tragedy, where investors bought at the peak, is very real for those chasing short-term gains in the latest market sensation.
Comments