China Galaxy Securities: Focus on the fundamentals line amid declining congestion. In the medium term, we are optimistic about semiconductor equipment components and advanced packaging.

China Galaxy Securities released a research report stating that after a slight rise in August, the semiconductor sector stabilized and consolidated, digesting the high capital crowding, with trading volumes declining. In terms of specific segments, the monthly growth rankings were: analog chip design > semiconductor materials > integrated circuit packaging and testing > integrated circuit manufacturing > semiconductor equipment > digital chip design. For September, the suggestion is to focus on directions with strong fundamental resilience and low crowding; adjustments for targets under pressure due to delivery disturbances and performance turning points in analog power. Mid-term prospects are positive for semiconductor equipment components and advanced packaging. The main viewpoints of China Galaxy Securities are as follows: August Market Review In August, the CSI 300 index rose by 0.46%, the electronics industry increased by 10.24%, with the semiconductor sector rising by 6.95%. In terms of specific segments, the monthly growth rankings were: analog chip design > semiconductor materials > integrated circuit packaging and testing > integrated circuit manufacturing > semiconductor equipment > digital chip design. Digital Chip Design The sector rose by 5.72% in August. In terms of computing power, Nvidia's revenue for FY2027 Q2 was $96.2 billion (up 106% year-on-year), with both results and guidance exceeding expectations; Tencent reported capital expenditures of 52.8 billion yuan for Q2, stating a significant ramp-up in computing power procurement for Q3; Alibaba's AI revenue has seen triple-digit growth for 12 consecutive quarters, while global investment in computing power continues to increase. In terms of storage, DRAM prices rose month-on-month throughout August, tapering off by the end of the month; SanDisk disclosed a long-term financial model, SK Hynix announced a 40 trillion won buyback and cancellation, while Samsung established a shareholder return framework of 90-110 trillion won, reinforcing the dividend characteristics of storage; CXMT Corporation's interim report greatly exceeded expectations. Analog Chip Design & Discrete Components In August, the analog chip design sector rose by 21.85%, and the discrete components sector saw a rise of 26.6%. For the entire month, the analog sector increased by about 17%, and discrete components rose by about 28%, leading all subdivisions. In August, ADI, TI, and STMicroelectronics successively issued price increase notices; reports from ChipMOS, Suzhou Novosense Microelectronics, and 3peak Incorporated indicated a quarter-on-quarter increase in revenue for 2026 Q2, with profits turning positive or showing significant improvement. The analog and power sectors are at the early stages of performance turning points, with anticipated resilience. Integrated Circuit Manufacturing The sector rose by 8.12% in August. Semiconductor Manufacturing International Corporation and Hua Hong Grace Semiconductor reported results that exceeded expectations, with accelerated revenue growth and improved gross margins for 2026 Q2; World Advanced and UMC confirmed a trend of price increases for foundry services in 2027; Samsung raised some advanced process foundry prices by up to 15%. The global pure wafer foundry market grew by 29% year-on-year in 2026 Q2, with TSMC, Samsung, and SMIC holding market shares of 73%, 7%, and 5%, respectively. Benefiting from high demand driven by AI and price increases, domestic foundries are expected to improve their performance quarter by quarter. Integrated Circuit Packaging and Testing The sector rose by 13.55% in August. Advanced packaging is the core track. TSMC achieved mass production of 5.5 times photomask CoWoS with a yield stability of over 98%, and capacity is expected to grow at a compound annual growth rate of over 80% from 2022 to 2027, with plans to outsource CoW processes to major companies like Dais and Moonlight; ChipMOS is considering price adjustments; JCET and Huatian showed significant quarter-on-quarter profit improvements in 2026 Q2; TongFu Microelectronics plans to co-establish an advanced packaging R&D center with Fujitsu. Advanced packaging has become a core bottleneck in the industry, with a continued expansion of the global supply-demand gap. Semiconductor Equipment The sector rose by 7.19% in August. Lam Research and Applied Materials exceeded expectations with their performance and accelerated growth guidance; on August 1, Japan's third round of semiconductor export controls came into effect, targeting advanced packaging equipment, accelerating domestic replacement; NAURA Technology Group's interim report fell short of expectations primarily due to parts supply restrictions affecting delivery pace, but order demand remains strong; ACM Research and Naura's interim results met expectations, with revenues for 2026 Q2 up 35.5% and 44.6% year-on-year, respectively. The upturn in prosperity coupled with the promotion of domestic alternatives continues to look positive. Semiconductor Materials & Electronic Chemicals The sector's growth rates in August were 18.12% and 22.3%, respectively. During the month, photoresist prices increased, indium phosphide substrates were in short supply, and the supply-demand gap for tungsten hexafluoride intensified, with Ajinomoto cutting 30% of ABF film supplies to China; in late August, GlobalWafers and other Taiwanese companies signaled price increases for silicon wafers, with domestic silicon wafer manufacturers expected to follow suit in Q3. It is recommended to pay attention to globally tight supply categories. Risk Warning: Risks from AI downstream demand falling short of expectations; risks from the pace of domestic semiconductor substitution not meeting expectations.