Cambricon 1Q26 Results Beat Expectations Across the Board; AI Chip Localization and Improving Supply Continue to Support Upside

Overview

This report is Bernstein's review of Cambricon Technologies Corp Ltd's (688256.CH) 1Q26 results. The report highlights that Cambricon's 1Q26 revenue, profit, and cash flow significantly exceeded expectations, marking a historic inflection point in earnings quality and cash flow generation. Growth was primarily driven by surging domestic AI computing demand, advancing AI chip localization, and operating leverage.

Core views

The core view is that Cambricon has entered a phase of scalable profitability, supported in the short term by strong fundamentals and industry sentiment, and in the medium term by accelerating revenue driven by orders, prepayments, inventory, and supply improvements. The company holds a leading position in the domestic AI accelerator ASIC sector and is viewed as a key alternative to Huawei in the Chinese market. Despite elevated valuations, the report believes the technological foundation, product iteration, and software ecosystem maturity justify the target price.

Analysis framework

The report employs a combined methodology of earnings breakdown, cash flow quality analysis, forward-looking order indicators, supply chain readiness assessment, product roadmap evaluation, and valuation multiples: first verifying whether 1Q26 revenue and profits beat expectations, then assessing growth sustainability via operating cash flow, customer collections, contract liabilities, prepayments, and inventory, and finally deriving a target price using 2027E EPS and P/E multiples.

Methodology notes

• Earnings AnalysisRevenue, Profit, and Operating Leverage Analysis

  Measuring earnings quality through revenue, gross margin, operating profit, net margin, R&D expense ratio, and EPS.

  Cambricon's 1Q26 revenue grew 159.6% YoY and net profit grew 185.0% YoY, while the R&D expense ratio declined with scale, demonstrating operating leverage and supporting net margin expansion.

• Cash Flow and Order QualityOperating Cash Flow, Contract Liabilities, and Prepayments Tracking

  Assessing order delivery, bargaining power, and supply readiness using cash flow, customer collections, contract liabilities, and prepayments.

  The turnaround to positive operating cash flow, customer collections exceeding revenue, contract liabilities rising to RMB 396mn, and prepayments increasing to RMB 1.90bn indicate improvements in both demand and supply-side readiness.

• Valuation MethodologyP/E Multiple Valuation

  Deriving the target price by applying a target P/E multiple to 2027E EPS.

  The report applies a 90x P/E multiple to Cambricon's 2027E EPS of RMB 21.80 to arrive at a target price of CNY 2,000.

Asset mapping & comparison

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

• Cambricon Technologies Corp Ltd (688256.CH)

  Covered stock, rated Outperform.

  Strengths

  Leading domestic AI accelerator ASIC manufacturer benefiting from AI computing demand and localization; strong improvements in 1Q26 revenue, profit, and cash flow; Siyuan 690 and NeuWare ecosystem enhance long-term platform attributes.

  Weaknesses

  High valuation places high demands on subsequent earnings realization, supply improvement, and product commercialization.

  Comparison

  The report describes it as the best alternative to Huawei among leading domestic AI chip manufacturers.

  Risks

  Commercialization failure of next-generation AI chips, insufficient advanced process capacity, intensifying domestic competition, and sanctions risks from the U.S. and Western allies due to Entity List inclusion.

Key data

• 1Q26 RevenueRMB 2.885bn / +159.6% YoYRevenue significantly beat expectations, described in the report as a robust broad-based beat.
• 1Q26 Net Profit Attributable to ParentRMB 1.013bn / +185.0% YoYProfit growth outpaced revenue, reflecting improved operating leverage.
• 1Q26 Non-GAAP Net ProfitRMB 0.934bn / +238.6% YoYRecurring profitability improved significantly.
• Operating Cash FlowRMB +0.83bn vs. RMB -1.40bn in 1Q25Cash flow turned strongly positive, indicating improved collections and order execution.
• Customer CollectionsRMB 3.16bnExceeded current period revenue, demonstrating strong collection capability.
• Contract LiabilitiesRMB 396mnRose rapidly from near zero at the start of the year, pointing to strong order inflows.
• PrepaymentsRMB 1.90bnUsed to secure wafer capacity and key materials, reflecting supply improvements.
• Target Price and UpsideCNY 2,000 / 41%Based on 2027E EPS of RMB 21.80 and a 90x P/E multiple.
• 2026E RevenueRMB 16.15bnBernstein's forecast is approximately 10.4% above the consensus estimate of RMB 14.634bn.

Impact & implications

The investment implication is that Cambricon is not only benefiting from domestic AI chip substitution but is also evolving from a single chip supplier to a full-stack domestic AI computing platform in terms of products and software ecosystem. If supply improvements continue and order conversion proceeds smoothly, revenue and earnings could continue to accelerate over the coming quarters; however, the high valuation implies a low tolerance for errors regarding delivery, capacity, and technological iteration.

Risks

• Failure to commercialize next-generation AI chips or inability to secure sufficient domestic advanced process capacity could lead to significant valuation de-rating.
• Intensifying competition from other emerging domestic AI chip suppliers could result in market share loss for Cambricon.
• Cambricon is on the Entity List, and the U.S. and its Western allies may continue to tighten sanctions.
• Valuation is already elevated; if revenue acceleration or margin improvement falls short of expectations, the stock price could face pressure.

What to watch

• Whether revenue acceleration continues in subsequent quarters and whether the 2026E revenue target of RMB 16.15bn can be achieved.
• Whether contract liabilities, prepayments, and inventory continue to support order delivery and supply improvements.
• Progress on next-generation products such as Siyuan 690, chiplet architecture, and FP4/FP8 support.
• Maturity of the NeuWare software stack and adaptation progress for mainstream models like DeepSeek-V4.
• Domestic AI chip competitive landscape, availability of advanced process capacity, and changes in external sanctions.