Cambricon’s 2Q revenue growth missed expectations, but high margins highlight strong operating leverage

Overview

Cambricon announced its second-quarter results on August 7, 2026. Revenue grew 75.8% year over year, but was below the growth pace implied by Bernstein’s and market full-year forecasts; meanwhile, gross margin, operating margin, and net margin all exceeded expectations. Bernstein believes the weaker revenue more likely reflects unpredictable quarterly recognition timing rather than deterioration in end demand, and expects sequential growth to accelerate in the second half of 2026, therefore maintaining its Outperform rating.

Core views

First, short-term revenue growth was below expectations, but historical quarterly recognition timing has fluctuated significantly, and one quarter of data is insufficient to prove a reversal in the growth trend. Second, product mix improvement, manufacturing efficiency gains, and pricing power in an undersupplied market jointly support a 56.1% gross margin and 41.7% net margin. Third, profit growth is clearly faster than revenue growth, and R&D intensity has declined to about 12%, indicating rapid release of operating leverage. Fourth, China’s advanced process logic capacity is accelerating expansion, while AI chip demand continues to be driven by hyperscale cloud vendors, telecom operators, internet platforms, state-owned enterprises, and emerging AI service providers; supply is expected to remain below demand in 2026–2027. Fifth, the target price adjustment only reflects a 49% increase in total share capital and does not represent a downgrade to earnings forecasts, valuation multiples, or investment judgment.

Analysis framework

The report compares actual quarterly results with Bernstein’s full-year forecasts and market consensus expectations to analyze variances, and evaluates earnings quality from revenue growth, margins, expense ratios, and operating leverage; meanwhile, it assesses medium-term growth potential through a China AI chip supply-demand model, and ultimately determines the target price using a price-to-earnings approach based on 2027 forecast EPS.

Methodology notes

• Earnings analysisActual versus expected variance analysis

  Compare actual quarterly results with the pace implied by the institution’s full-year forecasts and market consensus expectations.

  Second-quarter revenue growth was below the level implied by full-year forecasts, but margins and profit growth were better than expected, indicating a combination of weaker revenue and stronger earnings quality this period.

• Earnings quality analysisMargin and operating leverage analysis

  Observe changes in gross margin, operating margin, net margin, and expense ratios as revenue expands.

  Operating profit and net profit grew faster than revenue, and R&D expenses as a percentage of revenue declined to about 12%, indicating relatively clear fixed-cost dilution and operating leverage release.

• Industry analysisSupply-demand balance analysis

  Assess industry prosperity by comparing the pace of advanced process supply expansion with AI chip demand growth.

  Bernstein expects China’s AI chips to remain in short supply in 2026–2027 and then gradually move toward balance; newly added advanced process capacity is expected to help Cambricon convert demand into revenue.

• Valuation analysisForward P/E valuation

  Calculate fair value by multiplying forward forecast EPS by the target P/E ratio.

  The report applies a 91.5x P/E ratio to 2027 forecast EPS of RMB 14.52, corresponding to a target price of CNY 1,340.

Asset mapping & comparison

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

• Cambricon（688256.SS／688256.CH）

  The A-share AI chip company directly covered by the report

  Strengths

  Strong AI chip demand, robust gross margin and net margin, improved product mix and manufacturing efficiency, along with certain pricing power and significant operating leverage.

  Weaknesses

  Quarterly revenue recognition timing is highly volatile, advanced process capacity remains a supply constraint, and inventory has nearly doubled from the end of the first quarter.

  Comparison

  Second-quarter revenue growth was below the growth pace implied by Bernstein’s full-year forecast and market consensus expectations, but margins and profit growth were stronger.

  Risks

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

Key data

• 2Q26 revenueRMB 3.111 billionUp 75.8% year over year and 7.8% quarter over quarter.
• 2Q26 gross margin56.1%Up 177 basis points quarter over quarter and 22 basis points year over year.
• 2Q26 operating margin41.4%Up 621 basis points quarter over quarter and 276 basis points year over year.
• 2Q26 net margin41.7%Up 659 basis points quarter over quarter and 313 basis points year over year.
• 2Q26 net profitRMB 1.298 billionUp 90.1% year over year and 28.1% quarter over quarter.
• R&D expenses as a percentage of revenueAbout 12%Investment intensity declined further, supporting scaled profit growth.
• 2026 revenue forecastRMB 16.150 billionCorresponds to 149% year-over-year growth, 11.1% below market consensus of RMB 18.174 billion.
• 2026 forecast EPSRMB 7.50The pre-capitalization-of-capital-reserves forecast was RMB 11.17.
• 2027 forecast EPSRMB 14.52The EPS basis used for the target price valuation.
• Target valuation multiple91.5x 2027 P/EUsed to derive the CNY 1,340 target price.
• Change in total share capitalIncrease of 49%The company completed the capitalization of capital reserves into share capital in May 2026; adjustments to the target price and EPS are both mechanical changes.
• Target price upside12%Based on the closing price of CNY 1,199.93 and the target price of CNY 1,340.

Impact & implications

Given weak market sentiment, slower-than-expected revenue growth may trigger a modest negative short-term share price reaction; however, strong margins, sustained pricing power, and operating leverage provide fundamental support. If advanced process capacity is released as scheduled and revenue recognition accelerates in the second half of 2026, Cambricon is expected to convert robust demand into faster growth. However, the current valuation level is high, and any deviation in earnings delivery, capacity supply, or the policy environment could amplify share price volatility.

Risks

• Failure to successfully commercialize next-generation AI chips, or inability to secure sufficient advanced domestic process capacity, could lead to a significant valuation downgrade.
• Intensifying competition from emerging domestic AI chip suppliers could cause Cambricon’s market share to decline.
• Cambricon is on the U.S. Entity List, and the United States and its Western allies may impose stricter sanctions.
• Revenue recognition timing is highly unpredictable; if growth does not accelerate as expected in the second half of 2026, full-year results may fall short of forecasts.
• Inventory has nearly doubled from the end of the first quarter of 2026, and subsequent inventory conversion, impairment, and cash flow performance need attention.
• A 91.5x 2027 forecast P/E means the valuation is relatively sensitive to changes in growth, margins, and risk appetite.

What to watch

• Whether quarter-over-quarter revenue growth can accelerate significantly in the second half of 2026.
• The progress of China’s advanced process logic capacity expansion and Cambricon’s actual share of capacity obtained.
• Whether inventory growth can be smoothly converted into shipments and revenue, as well as related cash flow changes.
• Whether gross margin, operating margin, and net margin can remain at current high levels.
• Commercialization progress of next-generation AI chips and order status from major customers.
• Capital expenditure trends among hyperscale cloud vendors, telecom operators, internet platforms, state-owned enterprises, and AI service providers.
• Further changes in the domestic competitive landscape, market share, and U.S. sanctions policy.