The upcycle in AI and memory is accelerating China semiconductor recovery in 1Q26.
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The upcycle in AI and memory is accelerating China semiconductor recovery in 1Q26.
The report believes that the China semiconductor sector showed clearer recovery momentum in 1Q26. AI, compute, DDR5 and server capex-related companies are leading, while the power semiconductor and smartphone chain still faces pressure on margins and demand.
- Average sector revenue in 1Q26 grew about 30% year over year, with a much clearer improvement in dispersion than in FY25 and 4Q25.
- Top buy candidates include Montage, GigaDevice and Horizon Robotics, mainly benefiting from DDR5 upgrades, the memory upcycle, AI servers and rising ADAS penetration.
- BofA raised its FY26-28E revenue and earnings estimates for Montage and increased the target price from RMB220 to RMB251.
- Goodix lowered its FY26-27E revenue forecasts by 10-11% due to weaker smartphone demand and a more cautious outlook for terminal demand, and reduced the target price from RMB89 to RMB73.
- Silan remains Underperform: although FY25 revenue growth was 16%, competition continues to create pricing pressure, while expansion depreciation and margin pressure remain prominent.
Report interpretation
Overview
This report reviews the FY25 and 1Q26 performance of China fabless and IDM semiconductor companies covered by BofA. FY25 performance among A-share Chinese semiconductor companies was mixed, with 4Q25 average revenue growth of about 15%, mainly supported by recovery in compute-related demand, but with large volatility in profits. In 1Q26, sector fundamentals improved more clearly, with average revenue growth expanding to around 30% year over year and a more meaningful profit rebound. The report argues that AI-related demand, compute demand and AIoT expansion are the core recovery themes, while traditional power semiconductors remain in a more gradual recovery phase.
Core views
The key view is that, on one hand, rising AI and server capital expenditure, DDR5 penetration, higher storage prices and faster CPU/server shipments provide relatively strong growth visibility for computation and AI-related names such as Montage, GigaDevice and Rockchip. On the other hand, companies with high smartphone exposure such as Goodix and Maxscend still face weak demand, while power-semiconductor names such as NCE and Silan are seeing revenue recovery but price competition and depreciation pressure are limiting margin improvement. Horizon Robotics and InnoScience are viewed as longer-term growth drivers due to ADAS, AIDC, automotive, robotics and GaN applications.
Analysis framework
The report combines earnings review, industry-demand tracking, inventory days, price cycle, capex outlook, company earnings forecast revisions, and valuation comparison. The analysis starts from FY25 and 1Q26 actual revenue, net profit, gross margin, inventory levels, DRAM prices, hyperscaler and China server capex, and lead times for MCU and power devices, then maps these inputs to coverage company earnings forecasts and target-price updates.
Methodology notes
Different sub-sectors are assessed by revenue growth, inventory days, lead times, ASP and gross margins to determine where each is in the cycle.
The report segments storage, MCU, power semiconductors, AIoT SoC and ADAS SoC sub-industries, judging AI and compute chains to be leading recovery while power semiconductors are recovering with a stronger volume-led pattern but still face pricing pressure.
The valuation method is selected based on a company’s profitability profile and growth stage.
Profitable companies such as GigaDevice and Silan use P/E; high-growth or still-loss-making names such as Horizon Robotics and Black Sesame use a combination of P/S and DCF; InnoScience uses DCF and references PSG.
Forecasts and target prices are updated based on latest results, demand outlook, product mix and valuation updates.
The report raised Montage FY26-28E revenue and earnings forecasts and lowered portions of FY26-27E revenue or earnings forecasts for Goodix and Silan, with corresponding target-price adjustments.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- MontageA core beneficiary, remains Buy and has an upgraded target price.
- Strengths
- DDR5 upgrade cycle, ramp of new products such as PCIe Retimer and MRCD/MDB, growth in CPU/server shipments, and rising AI server capex.
- Weaknesses
- Valuation is sensitive to high-growth expectations, and a slowdown in server or AI demand could limit profit realization.
- Comparison
- The report lists Montage as one of the top buy picks and raises FY26-28E revenue and earnings forecasts.
- Risks
- Server demand below expectations, slower-than-expected DDR5 upgrades, and underperformance in ramp of new products.
- GigaDeviceOne of the preferred buy ideas, benefiting from storage recovery and share gains.
- Strengths
- Sustained DRAM, MCU and NOR Flash share gains, supported by the storage price cycle and recovery in MCU/NOR ASP.
- Weaknesses
- Facing domestic competition, pressure on MCU/NOR pricing, and margin compression.
- Comparison
- Along with Montage, it is in the report’s favored compute and storage-related theme.
- Risks
- DRAM/NAND price rebound lower than expected, weaker industry demand, and slower-than-expected growth of new products such as LPDDR4 and 3D DRAM.
- Horizon RoboticsOne of the preferred buy ideas, benefiting from ADAS and automotive SoC growth.
- Strengths
- FY25 revenue grew strongly, design wins expanded, and it is supported by higher ADAS penetration and scaling of next-generation automotive SoCs.
- Weaknesses
- Still loss-making; valuation relies on high revenue growth and expected path to break-even.
- Comparison
- The report values Horizon Robotics on a FY26E P/S basis and compares it with ADAS/AD SoC peers such as Black Sesame.
- Risks
- Slower-than-expected ADAS/AD penetration in China, heightened competition, supply-chain bottlenecks, and rising share of OEM or Tier-1 in-house solutions.
- GoodixMaintains Neutral with a lowered target price.
- Strengths
- FY25 revenue recovery is supported by new products such as ultrasonic fingerprint sensors, NFC/eSE, optical sensors and active pen ICs, with FY25 gross margin improving modestly to 42.2%.
- Weaknesses
- Soft smartphone shoulder-season demand and a more cautious terminal-demand outlook have led to a 10-11% cut in FY26-27E revenue forecasts.
- Comparison
- Compared with AI and compute names, Goodix’s smartphone exposure gives it lower visibility on growth.
- Risks
- Further smartphone demand weakness, memory price hikes pressuring terminal demand, and slower-than-expected new-product validation or ramp.
- SilanMaintains Underperform with a higher target price but unchanged rating.
- Strengths
- FY25 revenue grew 16%; IPM modules, 32-bit MCU, power module/PMIC, IGBT and SiC products continued to ramp.
- Weaknesses
- Pricing competition, expansion-related depreciation and high R&D spending are pressuring profits and margins, with FY25 net profit below market and BofA expectations.
- Comparison
- Within power semiconductors, revenue recovery is clearer but margin improvement is lagging.
- Risks
- Terminal demand slower than expected, more intense domestic competition, and execution risks in capacity and yield ramp.
- InnoScience TechnologyOne of the preferred long-term growth ideas in the report.
- Strengths
- Multiple long-term drivers from GaN adoption in AIDC, automotive and robotics, with FY25 revenue growing 46% year over year.
- Weaknesses
- Still in an investment phase and not yet profitable; valuation is sensitive to long-term growth assumptions.
- Comparison
- Like Horizon Robotics, the market focus is on high revenue growth and longer-term application penetration.
- Risks
- GaN adoption slower than expected, delayed path to profitability, and slower-than-expected customer expansion or design wins.
- RockchipBeneficiary of recovering AIoT demand.
- Strengths
- AIoT demand is strong, with product ramp and expanding terminal adoption driving growth and relatively robust gross margins.
- Weaknesses
- Was previously affected by 3Q25 memory price swings; edge AI and smart device demand remain cyclical.
- Comparison
- Compared with other AIoT SoC names, the report emphasizes its ongoing growth momentum.
- Risks
- Rising memory input costs, volatility in AIoT terminal demand, and stronger competition.
- NCE PowerBeneficiary of recovering power-semiconductor demand.
- Strengths
- Demand for power devices is recovering on the back of new energy, automotive and industrial applications, and some companies have raised MOSFET prices starting in 2Q26E.
- Weaknesses
- Industry-wide pricing remains constrained by competition, and recovery remains largely volume-driven.
- Comparison
- Like Silan, it is in the power-semiconductor recovery theme, but the report remains cautious on margins in this segment.
- Risks
- Price recovery below expectations, intensified competition, and volatility in downstream new energy and automotive demand.
Key data
- 4Q25 sector revenue growthabout 15% YoYAverage revenue growth for Chinese A-share semiconductor companies, mainly supported by recovery in compute-related demand.
- 1Q26 sector revenue growthabout 30% YoYSector fundamentals are clearly improving, with recovery mainly driven by demand recovery, AI demand and AIoT demand.
- Top five U.S. cloud providers' capexCY26E about +60% YoY, CY27E about +17% YoYConsensus forecast from BofA U.S. semiconductor team supporting AI server-related demand.
- China server capexabout +25% YoY in 2026EThe report estimates continued growth in China server capex, supportive for Montage memory interface chips and PCIe Retimers.
- DRAM 8Gb equivalent ASPUS$8.1 in 1Q26E, US$10.8 in 2Q26E, US$12.1 in 4Q26EBofA memory team expects DRAM prices to continue rising through 2Q26E and then remain broadly stable.
- Montage target priceRMB251, up from RMB220Maintains Buy; supported by DDR5 upgrades, PCIe Retimer demand and CPU/server shipment growth.
- Goodix target priceRMB73, down from RMB89Maintains Neutral; due to a weaker smartphone shoulder season and a more cautious terminal-demand outlook, FY26-27E revenue is cut by 10-11%.
- Silan target priceRMB20.3, up from RMB18.9Maintains Underperform; FY25 revenue growth was 16% year over year, but profits came in below expectation and margins were pressured by depreciation and competition.
- AIoT SoC average gross marginabout 41.7% in 1Q26Improved versus about 35% in 2024, reflecting product mix upgrades and scale effects.
- China power semiconductor average gross marginabout 26.6% in 1Q26Moderately recovered from an earlier trough, but competition still suppresses prices and margins.
Impact & implications
The investment implication is to prioritize semiconductor companies with structural exposure to AI, servers, DDR5, memory and ADAS growth, while remaining cautious on pricing competition, depreciation pressure and demand recovery slope in smartphone-linked and power semiconductor names. Montage and GigaDevice benefit from the storage and compute cycles, Horizon Robotics benefits from ADAS penetration and expanding design wins, and InnoScience benefits from the long-term adoption of GaN in AIDC, automotive and robotics; Goodix and Silan need to prove whether demand recovery, volume expansion and margin improvement are sufficient to outweigh industry competition.
Risks
- AI server and cloud capex growth falls short of expectations, weakening compute and memory-related demand.
- Recovery in DRAM, NAND, NOR or MCU prices is weaker than expected, reducing profit leverage in the storage chain.
- Demand in smartphones, automotive, industrial and new-energy end markets is weaker than expected.
- Domestic semiconductor competition intensifies, pressuring ASPs and gross margins.
- Depreciation, yield and capacity utilization risks from expansion at power-semiconductor companies.
- Slower-than-expected ADAS/AD penetration, or more OEM/Tier-1 use of in-house development solutions.
- Supply-chain bottlenecks, customer development below expectations, or slower-than-expected new product ramp.
- High-growth names that are still loss-making may take longer than expected to break even.
What to watch
- Whether DRAM prices in 2Q26E and beyond continue to rise as BofA expects and remain elevated.
- Whether U.S. cloud providers and China server capex deliver the strong CY26E growth outlook.
- Ramp progress of Montage PCIe Retimer, MRCD/MDB and DDR5-related products.
- Validation and revenue contribution of Goodix new products such as ultrasonic fingerprint sensors, OLED TDDI and high-power audio.
- Revenue growth and margin changes for Silan’s IPM, 32-bit MCU, IGBT, SiC and automotive-grade products.
- Whether inventory days for China’s MCU, analog, power device and global semiconductor companies continue to fall.
- Whether AIoT SoC gross margins can stay above about 40%.
- Design wins, revenue growth and paths to profitability for ADAS/AD SoC suppliers including Horizon Robotics and Black Sesame.