EB SECURITIES: North American AI computing power leads the technology sector with storage prices continuing to rise, helping to boost the basic fundamentals of Hong Kong semiconductor stocks.

EB Securities released a research report stating that strong AI demand, rising storage prices, and opportunities for domestic substitution are expected to boost the fundamentals of semiconductor stocks in Hong Kong. Recommendations: 1) Semiconductor Manufacturing International Corporation, a core domestic replacement asset, is expected to benefit from the boost in domestic AI computing power demand, and the continuous release of production capacity from high-end production lines will support long-term performance growth. 2) HUA HONG SEMI, with weak recovery in non-AI demand, but Hua Hong is gaining more domestic customer orders due to the trend of domestic substitution, and will also meet the "Local for Local" demand from European IDM manufacturers. Recommended focus: SHANGHAI FUDAN, strong smart meter business; recovery in non-volatile memory business; active expansion in smart meter and RFID business, extending downstream to automotive, IoT, etc.; rapid iteration of FPGAs and customer validation. The main viewpoints of EB Securities are as follows: AI: Strong demand for AI inference and sovereign AI, accelerated shipment of AI chips, and high-speed growth in the North American AI computing sector. From April 7, 2025 to June 12, 2025, leading AI chip companies NVIDIA/AMD/Broadcom rose by 54%/38%/75% respectively (vs. cumulative increase of 26% of the Nasdaq index), with strong performance in the North American AI sector and frequent positive news related to AI. 1) Strong demand for AI inference. NVIDIA's FY26 Q1 earnings call indicated "explosive growth in AI inference demand." OpenAI, Microsoft, and Google are experiencing exponential growth in token generation, with Microsoft handling over 1 quadrillion tokens in its FY25 Q3, a fivefold increase year-on-year. 2) Emergence of sovereign AI demand. On May 13, NVIDIA, AMD, and AI company Humain under the Saudi Public Investment Fund (PIF) reached a cooperation agreement totalling $15 billion. On June 11, NVIDIA announced a series of European AI infrastructure cooperation plans at the first GTC Paris, establishing and expanding AI technology centers in Germany, Sweden, Italy, Spain, the UK, and Finland. 3) Strengthened supply capacity of NVIDIA. NVIDIA has significantly improved its manufacturing yield, and NVL rack shipments are being delivered at a strong pace. On average, key large-scale customers are deploying nearly 1,000 GB200 NVL72 racks (72,000 GPUs) per week, with further production increases expected in FY26 Q2; GB300 is expected to begin mass production and delivery by the end of FY26 Q2. We believe that with the drive of accelerated delivery of GB200 NVL racks and the beginning of mass production of GB300, NVIDIA's strong growth in the second half of FY26 is highly certain. 4) Significant increase in ASIC deployment expected in 2026. Broadcom's FY25 Q2 earnings call stated that ASIC deployment will significantly increase next year, and by 2027, three major customers of Broadcom will deploy a cluster of 1 million AI acceleration chips. Non-AI: Weak recovery in demand for application chips outside of AI. 1) Low utilization rates of global wafer fabs. According to SEMI data, the global wafer fab utilization rate was 60%~70% in 2024, below the healthy level of 80%~90%. As of April 2025, only 3 out of the 7 semiconductor wafer fabs under construction in Japan have started production. 2) IDC lowers 2025 global smartphone shipment forecast. IDC has significantly lowered its forecast for global smartphone shipment growth in 2025, from 2.6% to 0.6%, due to economic uncertainty caused by tariffs and reduced consumer spending. 3) Poor performance in PC shipments. According to Jon Peddie Research, PC GPU shipments in 2025 Q1 were 68.8 million units, a year-on-year decrease of 1.6% and a quarter-on-quarter decrease of 12%; PC CPU shipments in 2025 Q1 were 61.9 million units, a year-on-year decrease of 0.3% and a quarter-on-quarter decrease of 14%. Storage: Storage market heating up, price increases for some products. The storage market gradually warmed up since the end of March 2025, especially in May 2025, when prices of several DDR3 and DDR4 products increased quarter-on-quarter. This was mainly due to Micron, Samsung, and SK Hynix planning to cease production of DDR3 and DDR4 by the end of this year, leading to a surge in market stocking. Additionally, downstream customers have largely depleted their inventories, and substantial growth in downstream demand is gradually emerging. TrendForce expects price increases for DRAM and NAND Flash products in 2025 Q3. Risk warning: Risks of macroeconomic downturn; uncertainty in tariff policies; lower-than-expected downstream demand; intensified industry competition.