Goldman Sachs maintains a Buy rating on VeriSilicon and raises the target price to Rmb309

Overview

This is a Goldman Sachs company research report on VeriSilicon (688521.SS). The report maintains a Buy rating and raises the 12-month target price to Rmb309, mainly based on order growth driven by ASIC design and turnkey projects, demand from AI cloud and AI devices, and long-term growth opportunities in semiconductor IP and solutions businesses.

Core views

Goldman Sachs believes VeriSilicon's backlog has reached a record high, with end-2025 orders at Rmb5.1bn, significantly higher than Rmb2.4bn at the end of 2024, and about 60% coming from AI ASIC and IP projects. Since about 80% of the company's orders convert into revenue within one year, the report expects strong order momentum to drive accelerated revenue growth going forward. Goldman Sachs also points out that the company serves both AI cloud and AI device customers, with more projects currently coming from AI cloud, and that it will benefit from generative AI and edge AI trends.

Analysis framework

The report evaluates VeriSilicon by combining 4Q25 results, the 1Q26 outlook, order trends, revisions to revenue and gross margin assumptions, and a discounted P/E valuation method. On earnings forecasts, Goldman Sachs raised 2026-30E revenue mainly to reflect growth in semiconductor design and turnkey solutions revenue driven by ASIC project demand; however, due to the lower gross margin of semiconductor design solutions, it lowered 2026-30E gross margin by 4.4-5.4 percentage points and raised the 2026E expense ratio because of higher R&D investment.

Methodology notes

• Valuation methodsDiscounted P/E

  Estimate long-term value using 2030E EPS and the target P/E, then discount it back to 2027E.

  Goldman Sachs uses 50x 2030E P/E and discounts it back to 2027E at a 10.0% COE to derive the 12-month target price of Rmb309. The 50x target P/E is based on the relationship between peers' 2027-28E earnings growth and 2027E trading P/E, with reference to VeriSilicon's 33% YoY earnings growth in 2030E.

• Valuation cross-checkforward P/S range

  Use the forward P/S trading range to test the reasonableness of the target price.

  The target price implies 2027E P/S of 21x, close to the company's recent forward P/S trading range of 14x-28x.

• Institutional frameworkGS Factor Profile

  Compare stock characteristics across growth, financial returns, valuation multiples, and integrated score.

  Goldman Sachs Factor Profile uses standardized percentiles to measure dimensions such as Growth, Financial Returns, Multiple, and Integrated, providing investment context relative to the market and industry peers.

Asset mapping & comparison

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

• VeriSilicon (688521.SS)

  Core covered company

  Strengths

  Holds a leading position in semiconductor IP and turnkey solutions, benefiting from demand in AI cloud, AI devices, generative AI, and edge AI; backlog increased significantly by the end of 2025.

  Weaknesses

  Lower gross margin in semiconductor design solutions led to cuts in 2026-30E gross margin assumptions; the company also continues to face high short-term R&D spending pressure.

  Comparison

  The target price implies 2027E P/S of 21x, within the company's recent forward P/S trading range of 14x-28x.

  Risks

  Technology development slower than expected, higher-than-expected costs of acquiring and retaining talent, and weaker-than-expected customer spending on IP or new chip projects.

Key data

• Backlog at the end of 2025Rmb5.1bnHigher than Rmb2.4bn at the end of 2024; the report says YoY growth was about 54%.
• Share of AI ASIC and IP ordersabout 60%Reflects that AI-related projects are an important source of new orders.
• Revenue conversion ratio of orders within one yearabout 80%The company disclosed that most orders will convert into revenue within one year, which is an important basis for the expectation of accelerated revenue growth.
• 4Q25 revenue growth34% YoYBroadly in line with company guidance and Goldman Sachs expectations.
• 4Q25 gross margin32%The report says it was broadly in line with expectations.
• 4Q25 semiconductor turnkey solutions growthabout 68% YoYOutperformed other businesses.
• 4Q25 semiconductor IP growth14% YoYLower than the growth rate of turnkey solutions.
• 2026E earnings revisiondown 18%Mainly affected by gross margin and R&D expense ratio assumptions.
• 2027-30E earnings revisionup 1-3%Reflects stronger revenue growth expectations.
• 2026E revenue forecastRmb5,296mnCorresponding to 68% YoY revenue growth.
• 2027E revenue forecastRmb7,708mnCorresponding to 46% YoY revenue growth.
• Target priceRmb309Raised from the previous Rmb273.
• Current priceRmb241.08Price disclosed in the report.
• Implied upside28.2%Based on the Rmb309 target price and the Rmb241.08 current price.
• COE10.0%Valuation discount assumption remains unchanged.

Impact & implications

If ASIC orders convert into revenue as expected, VeriSilicon's revenue and profit may improve significantly starting in 2026, and the market's pricing of its long-term AI-related growth potential may also be supported. However, short-term earnings forecasts are still constrained by falling gross margin and increased R&D investment, so the investment thesis is more tilted toward medium- to long-term order delivery and the release of scale effects.

Risks

• Technology development progress is slower than expected.
• Talent acquisition and retention costs are higher than expected.
• Customer spending on IP or new chip projects is weaker than expected.
• Lower-than-expected gross margin in semiconductor design solutions may continue to pressure earnings.
• If the pace of converting orders into revenue is slower than the roughly one-year cycle disclosed by the company, it will weaken the logic of accelerated revenue growth.

What to watch

• Whether 2026 revenue can deliver the expected 68% YoY growth.
• Whether the share of AI ASIC and IP projects in new orders can remain at a high level.
• The actual pace of backlog conversion from Rmb5.1bn into revenue.
• The growth differential between semiconductor turnkey solutions and semiconductor IP businesses.
• Whether gross margin remains stable within the lowered range forecast by Goldman Sachs during 2026-30E.
• Whether R&D investment leads to the rollout of more advanced nodes and AI-related projects.
• Whether the forward P/S range implied by the target price continues to gain market acceptance.