Cambricon’s Second-Quarter Revenue Pace Was Somewhat Weak, but Margins and Operating Leverage Were Strong

Overview

Cambricon released its second-quarter results on August 7, 2026. Revenue increased 75.8% year on year, but was below Bernstein’s forecast pace of 149% year-on-year growth for full-year 2026 and market consensus expectations. In contrast to relatively weak revenue, profitability improved significantly: gross margin, operating margin, and net margin were all strong. Bernstein judges that the revenue weakness is more likely due to an unpredictable quarterly recognition schedule rather than deterioration in end demand, and expects sequential growth to accelerate in the second half of 2026.

Core views

The core views include: first, second-quarter revenue missed expectations mainly due to quarterly recognition volatility, and single-quarter data are insufficient to negate the full-year and medium-term growth thesis; second, gross margin remained at a high level, expense ratios were controlled, and operating leverage was released, enabling profit growth to significantly exceed revenue growth; third, China’s AI capex cycle is continuing, with strong demand from hyperscale cloud vendors, telecom operators, internet platforms, state-owned enterprises, and emerging AI service providers; fourth, rapid expansion of advanced logic capacity will gradually ease supply bottlenecks, but domestic AI chips may still remain in overall short supply from 2026 to 2027; fifth, Cambricon is expected to achieve faster revenue growth by benefiting from domestic AI chip demand and capacity improvements.

Analysis framework

The report combines quarterly year-on-year and quarter-on-quarter results, full-year forecasts, and market consensus expectations to analyze variances, and evaluates operating leverage through gross margin, operating margin, net margin, R&D expense ratio, and profit growth. At the industry level, it uses China’s advanced logic capacity and AI chip supply-demand model to assess medium-term growth potential, and ultimately determines the target price using the 2027 expected P/E valuation method.

Methodology notes

• Earnings AnalysisQuarterly Year-on-Year, Quarter-on-Quarter, and Expectation Gap Analysis

  Compare actual quarterly revenue, profit, and margins with the same period last year, the previous quarter, full-year forecasts, and market consensus expectations.

  This method shows that the second-quarter revenue growth pace was below expectations, but gross margin, operating margin, and net margin were all strong, and profit growth was significantly faster than revenue growth.

• Industry AnalysisSupply-Demand Balance Analysis

  Assess the industry supply-demand gap through advanced logic capacity expansion and domestic AI chip demand growth.

  Bernstein expects China’s AI chip supply to remain below demand from 2026 to 2027, then gradually move toward balance as capacity increases.

• Valuation methodsForward P/E Valuation Method

  Determine the target price by multiplying expected 2027 earnings per share by the target P/E multiple.

  The report applies a 91.5x P/E multiple to expected 2027 EPS of RMB 14.52, deriving a target price of CNY 1,340. The target price adjustment only reflects a 49% increase in share capital, with net profit forecasts and valuation multiple unchanged.

Asset mapping & comparison

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

• Cambricon Technologies Corp Ltd（688256.CH）

  Core covered company

  Strengths

  High gross margin and net margin, significant operating leverage, controlled R&D expense ratio, and benefits from China’s AI capex cycle and the domestic AI chip supply-demand gap.

  Weaknesses

  The quarterly revenue recognition pace is difficult to predict, second-quarter revenue growth was below the pace implied by full-year forecasts and market consensus expectations, and the valuation level is high.

  Comparison

  Second-quarter revenue increased 75.8% year on year, below Bernstein’s full-year growth estimate of 149% and market consensus estimate of 180%; however, operating profit and net profit grew 88.4% and 90.1% year on year, respectively, both faster than revenue.

  Risks

  Failure to commercialize next-generation AI chips, insufficient domestic advanced process capacity, intensifying competition leading to market share decline, and further tightening of sanctions by the United States and its allies.

Key data

• 2Q26 RevenueRMB 3.111 billionUp 75.8% year on year and 7.8% quarter on quarter.
• 2Q26 Gross Margin56.1%Up 177 basis points quarter on quarter and 22 basis points year on year.
• 2Q26 Operating Margin41.4%Up 621 basis points quarter on quarter and 276 basis points year on year.
• 2Q26 Net Margin41.7%Up 659 basis points quarter on quarter and 313 basis points year on year.
• 2Q26 Net ProfitRMB 1.298 billionUp 90.1% year on year and 28.1% quarter on quarter.
• R&D Expense RatioAround 12%R&D intensity declined further, helping profits to be released rapidly.
• 2026 Revenue ForecastRMB 16.150 billionCorresponding to 149% year-on-year growth, 11.1% below market consensus expectations of RMB 18.174 billion.
• 2027 Revenue ForecastRMB 32.284 billionCorresponding to 100% year-on-year growth.
• 2026 Expected EPSRMB 7.50Per-share forecast after the increase in share capital.
• 2027 Expected EPSRMB 14.52The earnings base used for target price valuation.
• Target PriceCNY 1,340.00Implying about 12% upside versus the closing price of CNY 1,199.93.
• 2027 Target P/E91.5xUsed for the target price calculation.

Impact & implications

In the short term, weaker-than-expected revenue growth combined with soft market sentiment may cause the share price to react slightly negatively to the results; however, better-than-expected margins, controlled R&D expense ratio, and profit growth outpacing revenue growth indicate strong operating quality. In the medium term, if revenue recognition accelerates in the second half and advanced process capacity is released as scheduled, Cambricon is expected to convert robust demand into faster revenue growth. The current target price offers only about 12% absolute upside, but the “Outperform” rating reflects expectations for relative performance versus the Asia ex-Japan market benchmark over the next 12 months.

Risks

• If next-generation AI chips fail to be commercialized successfully, earnings expectations and valuation may be significantly lowered.
• If the company cannot secure sufficient domestic advanced process capacity, it may be unable to convert robust demand into revenue.
• Intensifying competition from emerging domestic AI chip suppliers may lead to a decline in Cambricon’s market share.
• Cambricon has been placed on the Entity List, and the United States and its Western allies may impose stricter sanctions.
• The revenue recognition pace is highly unpredictable, and quarterly revenue and growth rates may continue to fluctuate significantly.
• Inventory at the end of the second quarter nearly doubled from the end of the first quarter, and subsequent inventory digestion and demand realization need to be monitored.

What to watch

• Whether sequential revenue growth can accelerate as expected in the second half of 2026.
• The pace of advanced logic capacity expansion and the extent to which domestic advanced process supply bottlenecks are eased.
• Whether gross margin can remain at a high level of around 55% to 56%.
• Subsequent changes in operating margin, net margin, and R&D expense ratio.
• Whether rapid inventory growth corresponds to order preparation and can be smoothly converted into revenue later.
• Capex trends among hyperscale cloud vendors, telecom operators, internet platforms, state-owned enterprises, and AI service providers.
• Progress in commercialization of next-generation AI chips and changes in the domestic competitive landscape.
• Changes in sanctions policies by the United States and its allies targeting Entity List companies.