Donghai Securities released a research report stating that although industry demand remains robust driven by AI, supply-side factors such as low inventory levels and slow capacity expansion persist. However, excessively high memory prices could significantly suppress demand, while the trend of overheated AI investment might see a temporary moderation. US policies in certain technology-intensive sectors are likely to remain stringent, leading to increased costs in the short term for industries reliant on imports. In the long run, semiconductor localization in China is expected to continue accelerating. Given rapid global changes, the firm advises focusing on structural opportunities during market dips.
Key points from Donghai Securities are as follows:
**March 2026 Summary and April Outlook** In March, semiconductor industry demand remained strong, fueled by AI, with prices continuing their upward trend. Structural opportunities are seen in AI computing power, AIoT, semiconductor equipment, key components, and memory price increases. Global semiconductor demand continues to improve, with TWS earphones, wearable wrist devices, and smart home products experiencing rapid growth. AI servers and new energy vehicles maintain high growth rates, suggesting demand recovery is likely to continue into April 2026.
On the supply side, although corporate inventory levels are high and still rising, strong demand in certain AI-driven segments has led upstream wafer foundries to raise prices. Rising memory costs may increase expenses for consumer electronics, potentially leading to lower shipment volumes in 2026. Overall, the semiconductor supply-demand balance is expected to remain favorable in April.
Memory prices continued to rise in March, with increases spreading from memory and consumer electronics to power and analog semiconductors. AI remains the dominant narrative for the future, driving a 26.3% year-on-year growth in global wafer foundry output value in 2025. Amid a tense global geopolitical environment, US policies in technology-intensive areas are expected to stay restrictive. Short-term cost increases for import-dependent industries are anticipated, while long-term semiconductor localization is set to accelerate. Investors are advised to focus on leading companies in specific sub-sectors during market declines.
**March Performance: Electronic Sector Down 13.51%, Semiconductor Sector Down 14.87%** By the end of March, semiconductor valuations stood at a five-year historical percentile of 83.97% for PE and 71.57% for PB. The Shenwan Electronic sector fell 13.51% in March, with the semiconductor sub-sector declining 14.87%, compared to a 5.53% drop in the CSI 300 Index. Over five- and ten-year periods, semiconductor PE ratios were at 83.97% and 73.55%, respectively; PS ratios at 89.01% and 93.61%; and PB ratios at 71.57% and 78.35%.
In Q4 2025, the electronic sector remained the largest holding by market value in public fund portfolios, totaling RMB 673.574 billion. Semiconductor holdings accounted for 65.18% of the electronic sector's allocation and 13.18% of the total stock market value held by public funds. Key holdings were predominantly leading semiconductor companies with circulating market caps exceeding RMB 30 billion, with the top 20 holdings representing 87.76% of total semiconductor holdings.
**Semiconductor Demand: AI Servers, NEVs, TWS Earphones, and Wearables Show Strong Recovery** Consumer electronics, automotive, servers, and smart wearables account for over 80% of global semiconductor downstream demand, influencing upstream semiconductor demand. Global smartphone shipments grew 1.75% year-on-year in 2025, while Chinese smartphone shipments fell 14.61% YoY in February 2026 and 15.46% for January-February. Global PC shipments increased 7.78% in 2025, and tablet shipments grew 6.28%. Global new energy vehicle sales dropped 5.99% YoY in January 2026, while Chinese NEV sales fell 14.24% in February and 6.86% for January-February. Chinese TWS earphone shipments rose 6.7% in 2025, and global wearable wrist device shipments increased 6%.
**Prices Continue Rising in March, Shortages in Some Segments; April Increases Expected** Global semiconductor sales grew 61.74% YoY in February 2026 and 53.79% for January-February, indicating broad demand recovery. Memory module prices in March ranged from -4.17% to 37.33%, while DRAM and NAND Flash chip prices varied between -0.91% and 47.89%, continuing an upward trend. On the supply side, global semiconductor equipment shipment value rose 8.08% YoY in Q4 2025, and Japanese semiconductor equipment shipments increased 2.68% YoY in February 2026 and 2.62% for January-February, suggesting active capacity expansion over the next 1-2 years.
**AI Computing Power Drives 26.3% Growth in Global Wafer Foundry Value in 2025** AI computing power has become the core driver of global wafer foundry growth, pushing the sector's output value up 26.3% YoY in 2025 to a record high. According to TrendForce, the top ten foundries collectively generated USD 169.5 billion in output value. Advanced processes benefited from strong demand for AI server GPUs, TPUs, and flagship smartphone chips, while mature processes were supported by server and edge AI power management needs. Eight-inch capacity utilization remained high with rising prices. TSMC led with a 70% market share, boosting ASP through 3nm process adoption in flagship mobile APs.
Looking ahead to 2026, although high memory prices may curb consumer electronics shipments and affect overall foundry capacity utilization, AI remains a long-term theme. At GTC 2026, NVIDIA unveiled the Vera Rubin AI computing platform, comprising seven chips and five rack-scale systems. CEO Jensen Huang announced that Blackwell and Rubin sales would exceed USD 1 trillion by 2027, reinforcing sustained upward trends in AI computing demand and supporting upstream foundries.
**Investment Recommendations** Focus on: (1) AIoT companies benefiting from strong domestic and international demand, such as Espressif Systems, BES, Rockchip, Bluetrum, Actions Semiconductor, Allwinner Technology, Amlogic, ASR Microelectronics, and Telink Semiconductor; (2) AI innovation-driven segments: computing chips like Cambricon, Moore Threads, Hygon, Loongson, and Montage Technology; optical components like Source Photonics, Zhongji Innolight, Eoptolink, TFC Optical, and Accelink; PCB companies like Shengyi Technology, Wus Printed Circuit, Shennan Circuits, Victory Giant Technology, and Dongshan Precision; memory firms like Longsys, Demingli, Biwin Storage, GigaDevice, and Ingenic; server and liquid cooling-related names like Envicool, Jones Tech, Feilong, Siquan, and Foxconn Industrial Internet; (3) semiconductor equipment, components, and materials with localization potential, such as NAURA, AMEC, Piotech, Hwatsing, ACM Research, FuChuang Precision, Neway, CSSC, Watec, Anji, Dinglong, and Jingrui; (4) leading companies with recovering prices: power semiconductors like Nexperia, Yangjie Technology, and Dongwei Semiconductor; CIS firms like OmniVision, Smartsens, and GalaxyCore; analog chip makers like SG Micro, 3Peak, Maxic, and Chipown.
**Risk Warnings** (1) Downstream demand recovery may fall short of expectations; (2) Localization progress may be slower than anticipated; (3) Product development may face delays.
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