Domestic AI chip volume ramp-up opens up testing demand, and V-Test Technology is poised for both earnings and valuation upside

Overview

V-Test Technology is a leading independent third-party semiconductor testing service provider in China. The report believes that China's domestic AI chip supply chain is about to enter a volume ramp-up phase. Together with the return of high-end testing orders, the adoption of multi-chiplet architectures, and the deepening division of labor between wafer foundries and packaging/testing, the third-party testing industry is at a structural inflection point. The company has carried out counter-cyclical capacity expansion ahead of time, focused on deploying high-end testing equipment, and has strong technical accumulation in the higher-gross-margin chip probing test segment, positioning it to become a major beneficiary of this round of demand growth.

Core views

The core logic includes three points: first, mass production of domestic AI chips will drive rapid growth in testing demand, with related demand expected to reach an 88% CAGR from 2026 to 2028; second, multi-chiplet designs increase the number, complexity, and duration of tests, potentially bringing an additional approximately 15% to 30% incremental demand on top of base demand; third, with leading equipment scale, customer certification, engineering R&D capabilities, and early capacity expansion, the company is expected to gain market share and optimize its product mix. The report forecasts revenue and earnings CAGRs of 59% and 73%, respectively, from 2026 to 2028, with blended gross margin rising from 39.4% in 2025 to 44.6% in 2028.

Analysis framework

The report forms its investment view by combining forecasts for China's semiconductor testing market size, the mass production timeline for domestic AI chips, multi-chiplet design scenario analysis, equipment and capacity tracking, business mix and margin forecasts, and valuation comparisons with domestic and overseas peers. Valuation uses a one-year forward P/E method, referencing the company's three-year historical average, A-share packaging and testing peers, and KYEC's valuation re-rating experience during the AI testing cycle.

Methodology notes

• Industry demand forecastBottom-up market size forecast

  Forecast testing demand separately for traditional chips and AI chips

  Based on domestic chip shipments, testing complexity and time, and demand for chip probing tests and final tests, China's overall testing market is expected to reach approximately Rmb89.0 billion in 2028, with AI chip testing accounting for about 30%.

• Sensitivity analysisMulti-chiplet architecture scenario analysis

  Estimate the amplification effect of dual-chiplet designs on testing workload

  The report assumes that dual-chiplet solutions become mainstream, increasing chip probing test volume and complexity to 1.5 to 2 times and final test time to 1.2 to 1.5 times, thereby bringing about 15% to 30% additional growth to China's total testing demand.

• Earnings forecastCapacity, utilization, and product mix model

  Derive profits from equipment deployment, revenue conversion, and the share of high-gross-margin businesses

  Based on the gradual commissioning of high-end testing equipment, utilization improvement, an increasing share of chip probing tests, and AI chip testing ASP premiums, the report forecasts changes in the company's revenue, gross margin, and net profit.

• Relative valuationP/E valuation method

  Determine the target price using one-year forward P/E

  The target price adopts a 30x one-year forward P/E, close to the company's three-year historical average and about 30% below the valuation of major A-share packaging and testing peers, reflecting the company's relatively limited near-term pricing elasticity.

• Peer comparisonComparable company and historical case analysis

  Compare the growth and valuation performance of A-share packaging/testing companies and KYEC

  The report notes that the company's current forward P/E is about 40% below the average level of packaging and testing peers, and uses KYEC's earnings and valuation re-rating driven by AI testing demand as a reference case.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• V-Test Technology (688372.SH)

  Core recommended target in the report and a direct beneficiary of domestic AI chip testing demand

  Strengths

  Leading equipment scale, with more than 400 high-end testers; strong chip probing test technology and customer mix; early capacity expansion creates barriers in certification, lead times, and engineering capabilities; AI chip testing is expected to improve business mix and margins.

  Weaknesses

  High capital expenditure intensity, near-term pressure on free cash flow, reliance on overseas suppliers for high-end equipment, and relatively limited recent cost pass-through and pricing elasticity.

  Comparison

  Current forward P/E is about 40% below the average level of A-share packaging and testing peers; the target valuation is 30x, still about 30% below major A-share packaging and testing peers.

  Risks

  Restrictions on high-end equipment procurement, obstacles to testing the return of overseas wafers, intensified competition, weak non-AI demand, and capacity utilization falling short of expectations.

• A-share packaging and testing peers

  Comparable group for V-Test Technology's valuation and earnings growth

  Strengths

  Business scale and integrated packaging capabilities are typically stronger, and some companies have more complete customer and industry-chain coverage.

  Weaknesses

  Testing businesses may be mixed with packaging businesses, and AI testing demand may not enhance margins as directly as it does for independent testing companies.

  Comparison

  The report expects V-Test Technology's earnings CAGR from 2026 to 2028 to be 73%, above the comparable group's average of about 48%, while its valuation is significantly below peers.

  Risks

  If packaging and testing companies allocate more testing resources to AI chips, independent testing companies may face increased competition and pricing pressure.

• KYEC

  AI cycle reference case in the global third-party testing industry

  Strengths

  Benefited from AI testing demand, with significant improvement in profitability and market recognition.

  Weaknesses

  There are differences between Taiwan and Mainland China in customer structure, supply chain divergence, and equipment constraints, so the case cannot be applied completely and directly.

  Comparison

  KYEC's P/E rose from below 10x at end-2023 to about 30x in June 2026, providing a reference for V-Test Technology's potential valuation re-rating.

  Risks

  If AI chip volume ramp-up in Mainland China or third-party testing penetration improves more slowly than expected, V-Test Technology may not replicate the same valuation path.

• High-end testing equipment suppliers such as Advantest and Teradyne

  Key upstream suppliers for V-Test Technology's high-end capacity expansion

  Strengths

  They have leading technology and high market share in the automated test equipment market, with strong high-end product capabilities.

  Weaknesses

  Equipment lead times reach 6 to 12 months, supply is highly concentrated, and they are affected by export controls and geopolitics.

  Comparison

  Advantest and Teradyne together account for more than about 80% of the global automated test equipment market; domestic equipment manufacturers are narrowing the capability gap, but high-end substitution still requires time.

  Risks

  Export restrictions or delivery delays may postpone V-Test Technology's capacity deployment and revenue recognition.

Key data

• Investment ratingOverweightJPMorgan's initiation rating.
• Target priceRmb220.00Target date is June 2027, based on 30x one-year forward P/E.
• Current priceRmb125.48As of August 7, 2026.
• Potential upside75%Calculated based on the current price and target price listed in the report.
• AI chip testing demand growth88% CAGR from 2026 to 2028The overall testing market is expected to grow 23% over the same period.
• Company revenue forecastRmb1.575 billion, Rmb2.559 billion, Rmb4.217 billion, and Rmb6.332 billion for 2025 to 2028, respectivelyCorresponding to a revenue CAGR of about 59% from 2026 to 2028.
• Company net profit forecastRmb303 million, Rmb455 million, Rmb906 million, and Rmb1.580 billion for 2025 to 2028, respectivelyCorresponding to an earnings CAGR of about 73% from 2026 to 2028.
• Blended gross marginRising from 39.4% in 2025 to 44.6% in 2028Mainly driven by high-gross-margin chip probing tests, AI chip testing premiums, and utilization improvement.
• Testing equipment scaleMore than 1,500 unitsIncluding more than 400 high-end testing devices, representing a leading equipment portfolio among A-share independent third-party testing companies.
• 2025 capital expenditureRmb2.9 billionCapital expenditure is equivalent to 187% of revenue that year, reflecting the company's counter-cyclical capacity expansion intensity.
• Market share forecastRising from around 10% to more than 20% by 2028Growth is supported by capacity release, volume ramp-up of domestic AI chips, and higher customer share.
• China testing market sizeApproximately Rmb48.0 billion in 2025 and approximately Rmb89.0 billion in 2028AI chip testing demand is expected to account for about 30% of total demand by 2028.

Impact & implications

If domestic AI chips ramp up as expected, V-Test Technology's high-end equipment reserves will be converted into revenue relatively quickly and release operating leverage through higher utilization, an increased share of chip probing tests, and improved testing ASPs. At the industry level, supply chain divergence between wafer foundries and packaging/testing, the return of testing orders, and the increasing complexity of multi-chiplet architectures will raise the penetration rate and value of independent third-party testing. At the valuation level, an increased AI business mix, improved average selling prices, and enhanced earnings quality may drive the company from a cyclical testing target toward a structural growth target.

Risks

• High-end automated test equipment and probers are mainly supplied by overseas vendors, and tighter export controls or an extension of 6- to 12-month lead times may hinder capacity expansion.
• If relevant regulatory rules are further upgraded, advanced-process wafers produced by overseas foundries may be unable to return to Mainland China for testing, weakening the order return logic.
• Structural opportunities in the independent testing industry may attract new entrants, and packaging and testing companies may also allocate more resources to AI chip testing, leading to increased competition and pricing pressure.
• Improved domestic testing equipment capabilities may lower industry entry barriers, and customers' strong bargaining power may limit cost pass-through and premium sustainability.
• Macroeconomic weakness or rising component costs may suppress terminal demand for non-AI chips and reduce testing equipment utilization.
• High capital expenditure brings higher depreciation and near-term free cash flow pressure; if demand or capacity ramp-up falls short of expectations, margins may come under significant pressure.
• Mass production of domestic AI chips, adoption of multi-chiplet architectures, or customer certification progress slower than expected may lead to downward revisions to revenue and earnings forecasts.

What to watch

• The pace of mass production and testing order ramp-up for domestic AI chips from end-2026 to 2027.
• Commissioning, debugging, utilization, and revenue conversion of the company's more than 400 high-end testing devices.
• Construction progress at the Shanghai headquarters and Chengdu plant, as well as capital expenditure plans for 2026 to 2028.
• Computing chip revenue growth, the share of AI chip testing revenue, and the share of the chip probing test business.
• Average selling prices, blended gross margin, and the net impact of increased depreciation on margins.
• Whether the company's market share can rise from around 10% to more than 20% by 2028.
• Changes in U.S. export controls, rules on the return of overseas wafers for testing, and delivery cycles for high-end equipment.
• Capacity expansion by packaging/testing companies and new entrants, as well as the impact of domestic testing equipment maturity on the competitive landscape.
• Whether the company's valuation discount versus A-share packaging and testing peers narrows as the AI business mix increases.