Donghai Securities: Top CSP Capex Continues to Rise, AI Industry Chain Companies Show Bright Performance.

East Sea Securities released a research report stating that in April, the demand for the semiconductor industry under the drive of AI remains strong, and prices continue to rise. They are focusing on opportunities in the AI industry chain such as AI computing power, AI storage, optical module chips, AI PCB, and AIOT, while also paying attention to opportunities in domestic semiconductor equipment and components, materials, advanced packaging, and analog pricing. Global semiconductor demand continues to improve, with rapid growth in TWS headphones, wristband devices, and AI servers in April, and demand may continue to recover in May. On the supply side, the demand for AI-related submarkets is strong, with upstream wafer foundries experiencing tight production capacity and even squeezing other industries, leading to a rise in wafer prices. It is expected that the supply-demand situation for semiconductors in May will continue to be tight. In terms of pricing, in April, some storage prices continued to rise, and the price increases have spread from storage, CPUs, and consumer electronics to power, analog, MCU, and other semiconductor industries. AI is still the main narrative for the future, with the rate of domestication of the related industry chain continuing to rise. The main points of view of East Sea Securities are as follows: In April, the electronic sector rose by 23.36%, and the semiconductor sector rose by 23.77%. At the end of April, the valuation of the semiconductor industry was at historic percentiles over the past 5 years, with a PE ratio of 99.26% and a PB ratio of 84.79%. In April, the rise and fall of the Shenwan electronic industry were 23.36%, with the rise and fall of the semiconductor industry at 23.77%, while the Shanghai and Shenzhen 300 rose by 7.02% over the same period. Currently, looking at the PE and PB ratios of the semiconductor industry over the past 5 and 10 years, the PE ratios are 99.26% and 94.60%, respectively, while the PB ratios are 84.79% and 90.46%, respectively. In the first quarter of 2026, the market value of the public funds' holdings in the electronic industry remains the highest at 624.575 billion yuan, with the scale of semiconductor holdings accounting for 71.15% of the electronic industry and 13.99% of the total holding stock market value. The key holdings are mostly leading companies in the sub-sectors of semiconductors with a market capitalization of over 40 billion yuan, and the top 20 held companies account for 83.74% of the total semiconductor holdings. In April, semiconductor prices as a whole continued to rise, with some subareas experiencing supply shortages, and the trend of price increases may continue in May. Global semiconductor sales in March 2026 increased by 79.19% year-on-year, and 62.51% year-on-year in January-March, showing an overall recovery in demand. In April, there was a slight downward fluctuation in the prices of storage modules and DRAM, while Flash continued to rise strongly, and price increases in other semiconductor industries are gradually being implemented. In April 2026, the overall price range of storage module prices was -21.74% to 0%; the price range of storage chip DRAM and Flash was -14.84% to 46.67%. In the first quarter of 2026, the inventory of global leading companies remained high, with 150 A-share listed companies seeing an increase in inventory in the first quarter of 2026, with revenue quarter-on-quarter growth of 41.22% and net profit quarter-on-quarter growth of 239.76%. Demand recovery has driven the performance of enterprises. On the supply side, the shipment value of Japanese semiconductor equipment in March 2026 increased by 11.05% year-on-year, and 5.51% year-on-year in January-March, indicating a relatively positive capacity expansion in 1-2 years. In the first quarter of 2026, the capacity utilization rate of wafer foundries continued to rise year-on-year, and the price of TSMC wafers rose year-on-year. In the downstream demand of semiconductors, the recovery of AI servers, TWS headphones, and wearable wrist devices is relatively good, while the shipment volume of consumer electronics in 2026 may decline due to the impact of storage prices. Global downstream demand for semiconductors is dominated by consumer electronics, automobiles, servers, and wearable smart devices, which account for over 80%, and their sales will affect the demand changes in the upstream semiconductor industry. In the first quarter of 2026, global smartphone shipments decreased by 4.99% year-on-year, while in mainland China, smartphone shipments in March 2026 decreased by 7.09% year-on-year, and 12.72% year-on-year in January-March. In March 2026, global new energy vehicle sales increased by 3.97% year-on-year, with a cumulative decrease of 3.09% year-on-year in January-March, while in Shanxi Guoxin Energy Corporation, car sales increased by 1.21% year-on-year, with a cumulative decrease of 3.61% year-on-year. In 2025, the shipment of TWS headphones in China increased by 6.7% year-on-year, and the shipment of wearable wrist devices increased by 20.8% year-on-year. In April, overseas and A-share technology companies disclosed their financial reports, with overall CSP capital expenditures continuing to rise, and AI-related companies showing promising performance. The preview version of DeepSeek-V4 was released, further accelerating the domestication process of computing chips. In the first quarter of 2026, Amazon, Google, Microsoft, and Meta's capital expenditures increased by 78.25%, 107.44%, 84.39%, and 46.80% year-on-year, respectively. According to TrendForce, most major CSPs in North America have recently raised their 2026 capital expenditure guidance, with the total capital expenditure of the nine major CSPs in the US and China estimated to be around 830 billion US dollars for 2026, with the annual growth rate revised from 61% to 79%. Companies in the AI industry chain such as computing chips, PCBs, storage, and equipment showed excellent performance in the first quarter of 2026, with the strong demand brought by AI continuing to reflect in revenue. On April 24th, DeepSeek officially released the V4 preview version, divided into pro and flash versions, with parameters of 1.6T and 284B, and a context length of 1M. The Agent capabilities of V4-Pro have reached the current best level in Agentic Coding evaluations, with inferential performance comparable to that of top closed-source models in the world. At the same time, many domestic computing chip manufacturers such as Huawei, Cambricon, Hygon Information Technology, and Moore Thread have completed Day0 adaptation, covering the mainstream domestic AI chip platforms, further accelerating the domestication process of computing chips. Investment recommendations: Industry demand remains strong under the drive of AI, and supply-side capacity deployment is slow, with high prosperity likely to continue Current high storage prices may significantly suppress demand for consumer electronics such as smartphones, and current valuations are also at historic high percentiles. Taking everything into account, the bank believes that the high prosperity of AI infrastructure may continue, and the domestication of semiconductors is still accelerating, with a suggestion to focus on structural opportunities in AI and domestication on dips. Recommendations include: (1) AI innovation-driven sectors, focusing on computing chip companies such as Cambricon, Hygon Information Technology, Montage Technology, Moore Thread, Muxi Holdings, Loongson Technology Corporation; optics companies such as Yuanjie Semiconductor Technology, Suzhou Everbright Photonics, Zhongji Innolight, Eoptolink Technology Inc., Suzhou TFC Optical Communication, Accelink Technologies, Suzhou Dongshan Precision Manufacturing; PCB companies such as Victory Giant Technology, Wus Printed Circuit, Shenan Circuits, Shengyi Technology, etc.; storage companies such as Shenzhen Langs Electronics, Shenzhen Techwinsemi Technology, Biwin Storage Technology, GigaDevice Semiconductor Inc., Ingenic Semiconductor; and server and liquid cooling companies such as Shenzhen Envicool Technology, Jones Tech Plc, Shenzhen FRD Science & Technology, Guangdong Suqun New Material, and Foxconn Industrial Internet. (2) Companies in the AIOT field benefiting from strong domestic and international demand, such as Espressif Systems, Bestechnic (Shanghai) Co., Ltd., Rockchip Electronics, Shenzhen Bluetrum Technology, Actions Technology, Allwinner Technology, Amlogic, AO Technologies, Telink Semiconductor (Shanghai) Co., Ltd. (3) Upstream supply chain companies in the semiconductor equipment, components, and materials industries, focusing on companies such as NAURA Technology Group, Advanced Micro-Fabrication Equipment Inc. China, Piotech Inc., Hwatsing Technology, ACM Research, Shenyang Fortune Precision Equipment, Kunshan Kinglai Hygienic Materials, Peric Special Gases, Guangdong Huate Gas Co., Ltd., Anji Microelectronics Technology, Hubei Dinglong, Crystal Clear Electronic Material. (4) Leading companies in the price recovery cycle, focusing on companies such as power sector companies like Wuxi Nce Power, Yangzhou Yangjie Electronic Technology, Suzhou Oriental Semiconductor; CIS companies like OmniVision Integrated Circuits Group, Inc., SITESWELL, GalaxyCore Inc.; and analog chip companies like SG Micro Corp, 3peak Incorporated, Maxic Technology, Inc., and Wuxi Chipown Micro-electronics. Risk warning: (1) Downstream demand recovery is lower than expected; (2) The domestic substitution process is slower than expected; (3) Product research and development progress is slower than expected.