AI chip maker Cambricon experiences a 9% decline in its stock value

In a surprising turn of events, Cambricon Technologies Corp (寒武紀科技), the leading publicly traded designer of AI chips in China, saw its stock plummet by nearly 9 percent following a warning to investors about a doubling in its share price over the past month. This comes amidst a broader market rally in China's stock market, which has been fuelled by low interest rates, few better alternatives, and a growing emphasis on Beijing's support for emerging technologies like AI and chips.

The Shanghai-listed company's stock surge of 134 percent since July 28 is about 17 times the 8 percent gain of the CSI 300 Index, highlighting the significant attention Cambricon has been receiving in the market. However, the company has warned that the stock price may have deviated from its current fundamentals, and investors participating in trading may face significant risks.

Cambricon's success in the AI chip market is noteworthy, as it competes with tech giants like Huawei Technologies Co and Alibaba Group Holding Ltd. In the first half of the year, Cambricon achieved a record profit of 1 billion Renminbi (approximately 140 million USD), doubling its market capitalization and establishing itself as a serious challenger to Huawei. The company's impressive performance underscores how startups and big tech firms in China are increasingly employing domestic alternatives to Nvidia Corp.

The market rally is occurring despite US tariffs and a property crisis straining the Chinese economy. Despite this, investors are moving away from consumer firms and betting on the tech sector to re-energize an economy mired in deflation and trade tensions. However, the heavy dominance of retail traders in China's stock market has sparked concerns over growing risks to investors.

Some brokerages and fund managers are cutting back on financing and limiting purchases in response to the market rally. China's commercial banks are also tightening oversight of clients using credit cards to fund stock investments. The Chinese authorities have urged local agencies to use homegrown chips, citing security concerns and persistent uncertainty over US President Donald Trump's export curbs.

Cambricon has dispelled talk about nonexistent products in the pipeline, reminded investors it labors under US sanctions, and stressed the difficulties of ascending the technology ladder. The company forecasts revenue this year to be between 5 billion yuan and 7 billion yuan, up several-fold from 1.2 billion yuan last year.

Dosilicon Co, another player in the AI chip market, has temporarily suspended trading in its stock due to unusual fluctuations in its price. The company's stock price increase has exceeded that of most peers and is significantly higher than the performance of relevant indexes.

The market rally could gain more steam if retail investors buy into the concept of Beijing's support for emerging technologies like AI and chips. However, the recent warning from Cambricon serves as a reminder that such investments come with inherent risks and should be approached with caution.