Western: The AI boom is on the rise, bullish on domestic computing power opportunities.

Western has released a research report stating that this round of AI and storage boom cycle resonance, accompanied by the continuous improvement of domestic manufacturers' technological strength, the domestic substitution process of computing power and storage chips is expected to further accelerate, and the capital expenditure of domestic computing power and storage will be passed on along the industry chain, thereby driving the growth of wafer foundry and semiconductor equipment industry. They are optimistic about the investment opportunities in domestic computing power, wafer foundry, and semiconductor equipment. The main points of Western are as follows: The demand for AI is booming, and the domestic computing power infrastructure is constantly expanding, opening up a broad market space for domestic chips. In the 2026 government work report, it was first proposed to "implement new infrastructure projects such as super-large-scale intelligent computing clusters and electricity-computing synergy". Computing power, together with the power grid and the new communication network, constitute the three aces of new infrastructure, and computing power has become a national strategic resource on par with water and electricity. Zhang Yunming, Deputy Minister of Industry and Information Technology, stated at a press conference that by the end of March 2026, China's intelligent computing power scale has reached 1882EFLOPS (FP16), and the development of the computing power industry is in a good trend. On May 26, 2026, the China Information Security Evaluation Center and the National Security Technology Evaluation Center for the first time included AI chips in the security and reliability certification system. Nine domestic AI training and inference chips from manufacturers such as Huawei HiSilicon, Alibaba Pingtouge, BIREN TECH, Hygon Information Technology, ILUVATAR COREX, Muxi Technology, and Mollar Threads, were rated as the highest level I, and are expected to further open up the market space for domestic chips in government and key areas. Changxin Technology is about to be listed, the listing process of Yangtze Storage is steadily advancing, and the pace of expansion of domestic storage production is accelerating. Changxin Technology has disclosed the prospectus for the Science and Technology Innovation Board listing and the "Issuance arrangements and preliminary inquiry announcement", officially initiating the IPO issuance process for the Science and Technology Innovation Board, scheduled to start new stock subscription on July 16; Yangtze Storage has disclosed the first phase report of the IPO guidance, and the listing process is steadily advancing. According to Changxin Technology's prospectus, the company plans to use the raised funds of 29.5 billion yuan for the technological upgrade and transformation of the storage wafer manufacturing mass production line, the DRAM memory technology upgrade project, and the research and development project of dynamic random access memory future technology to achieve technological upgrading and capacity expansion. Since the second half of 2025, affected by factors such as the growth in demand for DRAM brought by the development of artificial intelligence, the global major manufacturers' capacity allocation, and the global shortage of DRAM products, the prices of DRAM products have risen, which is one of the main reasons for Changxin's performance growth since the second half of 2025. Recommendations for focus: 1) Domestic computing power: Cambricon (covered), Hygon Information Technology (covered), Shengketong Communication (covered); 2) Wafer foundry: Semiconductor Manufacturing International Corporation (covered), Hua Hong Grace Semiconductor (covered); 3) Semiconductor equipment: NAURA Technology Group, Advanced Micro-Fabrication Equipment Inc. China, Piotech Inc., Hwatsing Technology, ACM Research, Kingsemi Co., Ltd., Hangzhou Changchuan Technology, Wuhan Jingce Electronic Group, Skyverse Technology (covered). Risk Warning: Risks of AI technology breakthroughs falling short of expectations, risks of applications not meeting expectations, risks of intensified industry competition.