Investors are expected to maintain their strong interest in China’s Cambricon shares, despite a looming reshuffle in a key tech index that could trigger over $1 billion in passive selling. Cambricon, an AI chip designer often called “China’s answer to Nvidia,” saw its shares more than double in August. This surge caused its weight in the tech-focused STAR50 Index to exceed the 10% cap for a single stock.
According to Reuters estimates, a quarterly index rebalancing after the market close on Friday means Cambricon could face up to 8 billion yuan ($1.1 billion) in passive outflows from funds that track the index. Although the company’s shares fell 14% last week due to profit-taking and rebalancing concerns, they have since rebounded, gaining 10% this week and nearing record highs. LSEG data shows that Cambricon is currently trading at 521 times its trailing earnings, a stark contrast to Nvidia’s multiple of 50.
Despite these concerns, fund managers and analysts believe the weighting adjustment will not derail the broader Chinese AI rally. They are confident that Beijing’s push for tech self-sufficiency will boost sector growth and allow China to mirror the U.S. AI boom. Shihao Li, a research analyst at CLSA, stated, “Maybe some investors will use it as a reason to take profit, but I don’t think that will affect the long-term trend.”
The surge in Chinese AI stocks has been fueled by several factors, including government support for domestic innovation, the breakthrough of the DeepSeek model, and significant AI investments by major tech companies like Alibaba, Tencent, and Baidu. The global AI frenzy has also seen the tech-heavy Nasdaq hit record highs, powered by a 32% gain for Nvidia. Cambricon has surged 113% in 2025, with most of the gains coming last month after it reported a profit for the first half of the year.
Tilly Zhang, an analyst at Gavekal Dragonomics, noted, “There is now more optimism that China’s AI industry has passed a turning point, and entered a self-sustaining cycle of rising investment and higher profitability.” She added that the idea of China replicating at least part of the U.S. AI boom “no longer seems so far-fetched.”
Cambricon Technologies, a Beijing-based chipmaker founded in 2016 and listed in 2020, has been thrust into the spotlight due to its massive share increase. The ongoing tech rally in China has extended for a twelfth month, with onshore equities catching up to their offshore counterparts and lifting the broader Shanghai stocks to levels not seen in a decade.
However, the rapid surge in Cambricon’s shares has also raised valuation concerns, prompting the company to issue a risk warning last month. The company reported an astonishing increase in first-half revenue to 2.9 billion yuan ($407.21 million) from 64.8 million yuan a year earlier, and it swung to a profit of about 1 billion yuan. It expects to achieve a full-year operating revenue of 5 billion to 7 billion yuan.
Abraham Zhang, chairman of China Europe Capital, said that investors are “torn between hoping Cambricon can succeed in replacing foreign AI chips, and avoiding blowing up a speculative bubble.” The company’s profitability and ability to meet the demand for its AI chips will be a key focus for investors. Xu Qiongna, a Guangdong-based hedge fund manager, believes that while Cambricon is more expensive than Nvidia, its potential for rapid growth, supported by China’s tech self-sufficiency efforts, could justify its valuation.
