China Resources Microelectronics Enters AI Power and Optical Modules; Goldman Sachs Maintains Sell Rating

Overview

Goldman Sachs published an earnings review on China Resources Microelectronics, acknowledging revenue growth and gross margin improvement driven by 12-inch capacity expansion and new business developments. However, the firm considers current valuations excessive and notes intense competition in the power semiconductor sector, maintaining a Sell rating. The report raised its 12-month target price to 42.69 CNY, implying 36.9% downside from the current price of 67.68 CNY.

Core views

Dual Drive from Capacity and New Businesses: The company's 12-inch production line continues its ramp-up with stable utilization, combined with product price increases announced in February 2026, supporting gross margin improvements. Management stated it is leveraging the IDM model to capture emerging market demands such as AI server power components, low-altitude economy, and robotics. AI server power offerings cover full solutions including PSU and HVDC, expected to contribute increasingly in the future. Additionally, collaborations are underway with optical module leaders to develop next-generation optical module power driver modules, with mass production scheduled for the second half of 2026. Profitability Forecast Upgrade: Based on 4Q25 and 1Q26 results, Goldman Sachs has upgraded net profit forecasts for 2026-27 by 1%/5% and revenue forecasts by 6%/9%, reflecting new business expansion. Gross margin forecasts have been increased by 0.3-0.6 percentage points, primarily due to better-than-expected margins in 1Q26 and high utilization at foundries. R&D expenses were also adjusted upward to support AI-related product development. Significant Valuation Pressure: The target price is based on a 31.5x 2027E P/E (previously 29.0x), reflecting re-rating of power semiconductors in AI data center applications. However, current valuations remain above the company's historical averages and peer levels. Coupled with intense market competition, this constrains upside potential for the stock price.

Analysis framework

Goldman Sachs employs relative valuation by comparing peers to determine target P/E multiples. The specific steps include: 1) Selecting peer power semiconductor companies (e.g., JCET, Starpower) and analyzing the correlation between forward P/E and EPS growth; 2) Adjusting the target P/E from 29.0x to 31.5x in light of industry re-rating trends in AI data center applications; 3) Calculating the target price based on updated 2027 earnings forecasts and the target multiple. This approach emphasizes the linkage between industry cyclical trends and valuation multiples.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  Determine target valuation multiples via correlation between peer P/E and earnings growth

  The report compares the company's P/E against peer growth expectations. The 31.5x 2027E P/E reflects re-rating under AI applications, but risks of valuation exceeding historical averages should be noted.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Core tension in the power semiconductor industry lies in competitive supply dynamics versus AI-driven demand

  The report highlights that industry demand is rising due to AI data centers, but fierce competition on the supply side exerts pressure on valuations, necessitating a balanced assessment of both supply and demand factors.

Key data

• 12-Month Target Price42.69 CNYImplies 36.9% downside from current price of 67.68 CNY
• 2027E Target P/E31.5xIncreased from 29.0x, reflecting AI application re-rating
• 2026-27 Revenue Forecast Upgrade6%/9%Mainly due to expansion into AI server and optical module businesses
• 2026-27 Gross Margin Forecast27.9%/28.6%Upgraded by 0.3-0.6 percentage points due to price hikes and high utilization

Impact & implications

The report认为 the company will benefit in the short term from capacity expansion and new business deployment, but long-term valuations are constrained by industry competition. If AI server power and optical module businesses exceed volume expectations, profitability prospects could improve, though changes in the competitive landscape must be monitored. For investors, current valuations already reflect considerable optimism, resulting in significant downside risks.

Risks

• MOSFET/IGBT/SiC product prices outperform expectations
• New designs win and gain market share faster than expected
• Progress on new IGBT and power IC product development exceeds expectations
• Fewer new entrants in IGBT/SiC fields leading to eased competition

What to watch

• Ramp-up progress and utilization rates of 12-inch capacity
• Mass production progress of AI server power and optical module businesses
• Changes in the competitive landscape of the power semiconductor industry
• Product price trends and sustainability of gross margins