SMIC Will Catch Up With TSMC, Predicts A Hedge Fund Manager Who Outperformed 97 Percent Of His Peers

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The odds appear to be perennially stacked against China's preeminent chip manufacturer, SMIC. However, one very successful hedge fund manager now believes that the Chinese chip fabricator will eventually catch up with TSMC's gargantuan market capitalization.

Hedge fund manager who has outperformed ~97% of peers over the last 3 years has a very bold call/prediction for Chinese semiconductor company SMIC. Think TSMC.

Stock's one of their top holdings. Here's the call. pic.twitter.com/LKg9igbYEh

— David Ingles (@DavidInglesTV) January 7, 2025

To wit, the founder and co-CIO of APS Asset Management, Wong Kok Hoi, recently delineated his bullish case for SMIC in a dedicated interview with Bloomberg TV, highlighting key pillars of intrinsic strength for the Chinese chip manufacturer.

While conceding the huge disparity in the current market capitalizations of TSMC and SMIC, with the former trading at a $1 trillion market cap while the latter boasting a measly $50 billion capitalization, Wong asserts that SMIC can attain parity with TSMC by leveraging its strengths:

1. Wong rightly asserts that chip fabrication is largely a CapEx game right now, with a single foundry often costing as much as $10 billion. However, the fund manager then asserts that "SMIC has the [required] capital and also has the support of the Chinese government."
2. Wong then points out that "there is enough engineering talent in this country," going on to note that China produces 5 million graduates every year.
3. Additionally, Wong points towards China's "huge" domestic market as an insulating force of sorts, precluding the need for SMIC to try to tap the Western markets to achieve economies of scale.
4. Finally, and in what constitutes a much-needed concession to SMIC's technological bottlenecks, Wong agrees that China currently does not have access to ASML's EUV lithography machines that are needed to produce chips on the cutting-edge nodes. However, he then points out that it would take only a single Chinese company developing home-grown EUV lithography machines for the "chip war to end."

Wong openly concedes that his call is only likely to play out on a long time horizon. It remains to be seen, however, if the fund manager's bullish case for SMIC will unfold as envisaged. After all, we reported recently that SMIC is likely to remain bound to the rapidly aging 7nm node until at least 2026, boxed in by the escalating export controls placed by the US in recent years.

Meanwhile, in what is a testament to the ever-evolving technological innovation at TSMC, Taiwanese press reports have recently proclaimed that the world's leading foundry has developed an experimental photonics-based chip prototype in collaboration with NVIDIA.

For the benefit of those who might not be aware, silicon photonics uses light in the infrared spectrum instead of an electric current to transfer data within and between microchips via an on-chip photonic integrated circuit (PIC), offering a much higher bandwidth at a fraction of the power consumed by the traditional chip architecture. This method leverages existing fabrication techniques and offers one potential avenue for overcoming limitations encoded within the Moore's Law.

Of course, China is also focusing on silicon photonics as one potential avenue for breaking free from ASML's technological stranglehold, with the Asian giant's JFS Laboratory recently managing to light up a laser source that was integrated with a silicon-based chip, filling "one of the few blanks" in China's opto-electronics technology.

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