Huafu Securities: Semiconductor industry sentiment continues to recover, focusing on domestic replacements and AI-related investment opportunities.

Huafu Securities released a research report stating that the global semiconductor industry continues to recover, with sales reaching $627 billion in 2024 (up 19% year-on-year) and expected to grow by 11% in 2025. The demand for computing chips is being driven by AI and IoT, with domestic alternatives accelerating; analog chips are seizing the opportunity of domestication due to tariff policy adjustments. The localization process of semiconductor equipment is accelerating, with Mainland China's equipment investment increasing by 35% year-on-year to $49.6 billion. Power semiconductors are benefiting from the demand for new energy vehicles, photovoltaics, and AI servers, leading to steady industry expansion. Overall, all subsectors are showing positive growth trends. The firm recommends focusing on computing chips, analog chips, storage, semiconductor equipment and components, semiconductor materials, power semiconductors, and chip manufacturing. The main viewpoints of Huafu Securities are as follows: Continued recovery in the semiconductor industry From November 2023 to February 2025, global and Chinese semiconductor sales have seen 16 consecutive months of year-on-year positive growth in monthly sales, indicating a sustained recovery in the industry. According to the annual report of JCET Group Co., Ltd., citing WSTS data, global semiconductor sales are expected to reach $627 billion in 2024, a 19% year-on-year increase, with global semiconductor market sales expected to increase by 11% to $697 billion in 2025. Chip manufacturing: Continued increase in capacity utilization for chip foundry leaders Benefiting from the upgrade in functionality and performance of the latest intelligent terminal products, catalyzing a wave of product upgrades in smartphones, personal computers, wearable devices, consumer electronics, etc., the demand for end devices has shown a growth trend, indicating a significant overall recovery in the global semiconductor industry, with the capacity utilization rate of chip foundry leader Semiconductor Manufacturing International Corporation rising from a low of 68.1% in Q1 2023 to 90.4% in Q3 20204, with a further increasing trend expected. Computing chips: Continued growth in demand driven by large model training and inference, AIoT From the expected supply constraints of Nvidia H20 to substantial constraints more recently, it is expected that the verification and use of domestic computing chips will significantly increase. The rapid growth of the AIoT market brings new opportunities for computing chips on the edge and end sides. Analog chips: Acceleration of domestic substitution for analog chips as the chip origin is determined to be wafer fab site Due to weak industry sentiment combined with international giants such as Texas Instruments and ADI triggering a price war, the analog chip industry saw a downturn in 2022 and 2023. With the growth in demand for smartphones and smart driving, and with China determining the origin of integrated circuit tariffs to be the wafer fab site, supply-side pressures have hit overseas low-price strategies, gradually improving the sentiment in the analog chip industry. Storage: AI drives stable storage prices, significant recovery in storage industry performance In 2024, storage industry prices stabilized and rebounded, with significant market growth. According to CFM flash memory market data, the storage market size grew by 84% year-on-year, reaching $167 billion, setting a historical high, with the NAND flash market size at $69.6 billion, up 75% year-on-year, and the DRAM market size at $97.4 billion, up 91% year-on-year. It is expected that the demand for NAND and DRAM capacities in 2025 will increase by 12% and 15% compared to 2024. In addition, AI edge plays a crucial role in driving the recovery of storage. The timing is right for domestic substitution of semiconductor equipment, and continuous breakthroughs in semiconductor materials In 2024, the global semiconductor equipment market size increased by 10% year-on-year, reaching a historical high of $117.1 billion in annual sales, with Mainland China's status as the largest semiconductor equipment market seeing a 35% year-on-year increase in investment to reach $49.6 billion. Domestic semiconductor equipment vendors and materials companies have covered a wide range of product lines, with continuous advancements in technology leading to an acceleration of domestic substitution. Power semiconductors: Continued industry growth driven by electric vehicles, AI servers, and photovoltaics Under the dual-carbon strategy and the AI wave, market requirements for energy conversion efficiency and the level of equipment intelligence continue to rise. The future penetration of electric vehicles is expected to continue to increase, with a stable growth in photovoltaic installations and the deployment of AI computing power, driving the demand for power semiconductors and the industry is expected to steadily expand. Risks Geopolitical risks, lower-than-expected terminal demand, and slower-than-expected technological breakthroughs.