SMIC could rival TSMC's $1 trillion valuation despite tech restrictions, claims asset manager

Singapore-based APS Asset Management’s founder and co-CIO, Wong Kok Hoi, thinks SMIC might eventually match TSMC’s market value—despite their massive difference in size. TSMC’s market capitalization has soared past an incredible $1 trillion, while SMIC is hovering around $50 billion.

In a chat with Bloomberg TV on January 8, Wong pointed out a few reasons why SMIC could head upwards. First, China has a massive pool of engineering talent—churning out around five million graduates annually—and SMIC has plenty of capital and government backing. Since chip fabs usually cost more than $10 billion to build, Wong thinks SMIC can handle that sort of financial load.

China’s own market could also give SMIC a leg up by letting the company scale up production without needing Western customers. However, Wong admits that SMIC is facing some significant tech obstacles, mainly because they don’t have access to ASML’s EUV lithography machines, which are crucial for high-end chipmaking.

Some progress is being made in China’s semiconductor space, though. For instance, the Harbin Institute of Technology’s Advanced Technology Research Institute claims it’s built a “Discharge Plasma Extreme Ultraviolet (EUV) Lithography Light Source,” which apparently has better energy efficiency and cost benefits. Still, experts say more work is needed before any commercial EUV solution is ready.

Meanwhile, TSMC isn’t standing still. Taiwanese media reports that it’s joined forces with Nvidia to develop a prototype photonics chip. This silicon photonics tech uses infrared light for data transmission instead of regular electric signals, which could mean faster speeds and less power usage.

China’s also playing around with photonics. The Hubei Jiufengshan Laboratory (JFS) says it just pulled off integrating a laser light source into a silicon chip. But for now, SMIC is blocked by U.S., Japanese, and Dutch restrictions on advanced chipmaking equipment, and that probably won’t change until at least 2026.

Wong, who started APS Asset Management in 2002, is looking at all this from a long-term perspective. In early 2020, his firm switched to an “All in China” investment strategy, betting on the Chinese market but still being careful about valuations.