A Look At SMIC’s (SEHK:981) Valuation As China Pushes Advanced AI Chip Production

Simply Wall St.02-26 06:25

Semiconductor Manufacturing International (SEHK:981) is back in focus after management issued first quarter 2026 guidance calling for flat sequential revenue and a projected gross margin range of 18% ...

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See our latest analysis for Semiconductor Manufacturing International. The new first quarter 2026 guidance comes at a time when Semiconductor Manufacturing International’s share price has pulled back in the short term, with a 30 day share price return of 7.54% and a year to date share price return of 6.99%. However, the 1 year total shareholder return of 21.69% and very large 3 year total shareholder return suggest the longer term story has been much stronger as investors weigh China’s push into advanced AI focused chip production against current profitability and capacity plans. If you are looking beyond a single foundry stock and want to see what else is tied to the AI build out, take a look at our screener of 33 AI infrastructure stocks. With SMIC guiding for flat near term revenue, a mid teens gross margin and the share price trading close to analyst targets, the key question is simple: is there still a buying opportunity here or is future growth already priced in? AdvertisementMost Popular Narrative: 7.2% Undervalued With Semiconductor Manufacturing International last closing at HK$69.85 against a narrative fair value of HK$75.24, the market is pricing in a discount that hinges on how investors view its capacity build out, demand mix and margin outlook.  SMIC's aggressive expansion of wafer capacity, particularly in 8-inch and 12-inch nodes, positions the company to capture rising demand from domestic downstream markets such as automotive and analog, supported by strong volume growth and high utilization rates; this supports long-term revenue growth and stabilization of gross margins.  Read the complete narrative. For investors curious about what kind of revenue path and margin recovery sit behind that fair value, and what sort of earnings multiple needs to hold for it to stack up, the full narrative lays out the detailed assumptions and how they connect to that HK$75.24 figure. Result: Fair Value of HK$75.24 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, you also need to weigh risks such as heavy dependence on Chinese demand and high capital spending, which could pressure margins and make earnings more volatile. Find out about the key risks to this Semiconductor Manufacturing International narrative. Another View: Rich Multiples Raise the Bar While the narrative fair value points to SMIC being 7.2% undervalued at HK$75.24, the current P/E of 115.3x tells a tougher story. That compares with a fair ratio of 43.6x, an Asian semiconductor average of 43.1x and a peer average of 51.3x. This suggests a lot already rests on future execution and sentiment. See what the numbers say about this price — find out in our valuation breakdown. SEHK:981 P/E Ratio as at Feb 2026Next Steps With sentiment in this piece pulling in both directions, it makes sense to look at the full picture yourself and decide quickly where you stand, starting with 2 key rewards and 1 important warning sign. Ready to find your next idea? If you want to stress test your thinking beyond SMIC, use the Simply Wall St screener to compare different opportunities and build a broader watchlist.  Target value first and see which companies line up with our 224 high quality undervalued stocks that combine quality fundamentals with what may be appealing pricing. Prioritize resilience by scanning companies in the 323 resilient stocks with low risk scores that score well on financial health and business stability checks. Hunt for underfollowed stories using the screener containing 571 high quality undiscovered gems, where smaller names with solid metrics might not yet be on everyone’s radar.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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