The electronics sector is expected to see a significant upward trend in returns in the second half of 2025, driven primarily by strong AI demand and domestic self-sufficiency needs, according to a research report by Industrial Securities. The sector's performance continues to improve, with valuations also expanding.
Currently, computing power demand remains on an upward trajectory, leading to widening supply-demand gaps in upstream materials and storage. Additionally, following substantial infrastructure development, AI innovation on the device side is expected to accelerate as models mature.
**Key Views from Industrial Securities:**
1. **Storage Industry Faces Tight Supply-Demand Dynamics, AI as Core Demand Driver** - The rapid growth in AI training and inference has boosted demand for high-bandwidth memory (HBM), high-capacity DDR5, and enterprise SSDs in data centers. - Overseas storage manufacturers have been cautious in capital expenditures, limiting new capacity additions. - Global NAND and DRAM supply shortages are projected to persist in 2026-2027, with NAND deficits at -14.20% and -14.25%, and DRAM deficits at -9.38% and -8.84%, respectively. - Domestic storage chip and module companies stand to benefit from rising industry momentum.
2. **Domestic Storage Advancements** - Yangtze Memory is expected to mass-produce 300+ layer 3D NAND products, while ChangXin Memory continues HBM development. - Price and technology cycles are aligning, potentially driving capital expenditures beyond expectations.
3. **Computing Power Demand Growth and Localization Opportunities** - Leading cloud service providers (CSPs) reported record-high capital expenditures in Q3 2025, signaling sustained demand for computing power. - Hardware upgrades, such as Rubin-series designs, are increasing PCB demand, with global computing PCB market size projected at ¥51.3B, ¥106.8B, and ¥178.5B in 2025-2027, growing at 88%, 108%, and 67%, respectively. - Supply shortages in upstream materials like HVLP4 copper foil are expected from Q2 2026. - Liquid cooling solutions are gaining traction as air cooling hits performance limits. - Domestic computing chips are gaining competitiveness in performance, pricing, and ecosystem, reducing reliance on foreign suppliers like NVIDIA.
4. **Device-Side AI Innovation Accelerates** - Apple is intensifying AI investments, enhancing model capabilities through in-house R&D and partnerships. - Future iPhone, wearables, and smart home products will integrate AI across all scenarios. - Smart glasses are emerging as a key AI device-side platform.
**Investment Recommendations:** 1. **Storage Sector:** Focus on companies like Piotech, AMEC, NAURA, Skyverse, ACM Research, Anji Micro, Dinglong, Guanggang Gas, and Yoke Tech. 2. **Computing Power & Localization:** Monitor players such as Wus Printed Circuit, Shennan Circuits, Shengyi Tech, Victory Giant, Kinwong, Guangdong Goworld, Nanya New Materials, DFD, Jones Tech, Cambricon, and SMIC. 3. **Device-Side AI & AR:** Track players including Avary, Luxshare, Lens Tech, JBT, Goertek, Crystal Optech, Bestechnic, SICC, Will Semi, and Smartsens.
**Risks:** Weak end-demand, escalating U.S.-China trade tensions, and slower-than-expected domestic substitution progress.
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