Goldman Sachs raised Nexchip target price to Rmb70, maintains Neutral

Overview

This Goldman Sachs company research report covers Nexchip (688249.SS), with the core view that China’s semiconductor supply chain is being driven by expansion at advanced nodes and the generative AI trend, and that Nexchip’s future earnings growth can be supported by 40nm/28nm expansion, pricing, and localization demand. Despite a significant increase in the target price, the report still maintains a Neutral rating because valuation is considered reasonable.

Core views

The key judgments in the report are: first, Nexchip’s new capacity will cover downstreams including AI smartphone, AI PC, and smart automotive, which is expected to improve medium-to-long term revenue visibility; second, the 10% price increase from June 2026 helps offset rising raw-material costs; third, rising depreciation from new capacity will restrain some margin improvement; fourth, Goldman Sachs’ 2026-27E revenue and net profit forecasts are above Bloomberg consensus, reflecting more optimistic expectations for shipment growth.

Analysis framework

The analytical framework focuses on revisions to earnings forecasts, capacity expansion pace, price adjustments, peer valuation correlations, and discounted P/E. The report moves the valuation anchor from near-term P/E to 2030E discounted P/E to capture longer-term growth opportunities and aligns with other China semiconductor coverage companies.

Methodology notes

• Valuation methods2030E discounted P/E

  Discounting the 2030E target P/E back to 2027E

  The target price is based on a 31x 2030E discounted P/E, discounted back to 2027E using 9% cost of equity; the 31x target P/E is derived from the correlation between peers’ forward transaction P/E and net profit growth.

• factor analysisGS Factor Profile

  Growth, return on capital, valuation multiples, and composite percentile

  Goldman Sachs’ factor framework ranks standardized indicators such as growth, financial returns, and valuation multiples to compare a stock’s relative position versus the market and industry peers.

• M&A frameworkM&A Rank

  Tiering of probability of potential acquisition

  Goldman Sachs categorizes covered companies into three tiers by potential take-over probability; Nexchip’s M&A Rank is 3, indicating low probability and is generally not included in target price.

Asset mapping & comparison

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

• Nexchip (688249.SS)

  Covered security

  Strengths

  It benefits from rising Chinese semiconductor capex, 40nm/28nm expansion, price increases, and localization demand.

  Weaknesses

  Depreciation costs from added capacity may suppress gross margins, and valuation is already reflecting much of the growth.

  Comparison

  Goldman Sachs’ 2026-27E revenue and net profit forecasts are above Bloomberg consensus.

  Risks

  Capacity expansion, DDIC and CIS demand, R&D progress, and competitive intensity may deviate from expectations.

• China semiconductor supply chain

  Industry backdrop and growth driver

  Strengths

  Advanced-node expansion, the generative AI trend, and localization demand support ecosystem development.

  Weaknesses

  Cyclical capex and end-market demand fluctuations can affect returns on capacity expansion.

  Comparison

  Valuation methodology is consistent with Goldman Sachs’ China semiconductor coverage peers.

  Risks

  If customer capex slows or end-market demand is weaker than expected, growth realization may be delayed.

Key data

• RatingNeutralThe rating has been maintained since September 17, 2025.
• 12-month target priceRmb70.00Previous target price was Rmb41.70.
• Current priceRmb54.12Price disclosed on the report cover page.
• Implied upside29.3%Calculated based on target price versus current price.
• Capacity expansion plan55k 12-inch wafers per monthNew fab is expected to run pilot in 4Q26 and reach full production by 2Q28.
• Expansion capex budgetRmb35.5bnUsed for capacity expansion in 40nm and 28nm chip manufacturing.
• Price adjustment10% price increase starting June 2026Used to offset rising raw material costs.
• 2026-27E net profit revision+1%/+5%Driven primarily by higher revenue assumptions.
• 2026-27E revenue relative to consensus+12%/+14%Goldman Sachs forecasts are above Bloomberg consensus.
• 2026-27E net profit relative to consensus+15%/+28%Reflects more optimistic views on shipment growth and manufacturing efficiency improvements.

Impact & implications

For investors, the report conveys a combination of improving growth certainty but still strong valuation constraints: capacity expansion and pricing increases strengthen long-term revenue and earnings leverage, while high capex, depreciation pressure, and elevated forward P/E limit scope for rating upgrades. For the supply chain, Nexchip is seen as a beneficiary in China’s semiconductor localization and advanced-node expansion cycle.

Risks

• Capacity expansion progresses slower than expected or faster than expected.
• DDIC and CIS demand is weaker than expected or stronger than expected.
• R&D progress is slower than expected or faster than expected.
• Competitive intensity is higher than expected or lower than expected.
• Increased depreciation from new capacity may pressure profit margins.

What to watch

• 4Q26 new fab pilot progress and ramp pace to full production in 2Q28.
• Actual contribution of 40nm and 28nm businesses to revenue growth.
• Execution and customer acceptance of the 10% price increase starting in June 2026.
• Impact of higher depreciation on 2027E gross margin and net margin.
• Whether Bloomberg consensus follows revisions upward in revenue and profit forecasts.
• Trends in Chinese semiconductor localization, AI smartphone, AI PC, and smart automotive demand.