Bernstein's China Semicap Outlook: Revised Logic, Revised DRAM

In the dynamic world of semiconductors, Bernstein's latest outlook for the China semicap sector in 2025 brings both opportunities and challenges. The report highlights a revision in the growth outlook for logic and DRAM segments, with implications for investors and the broader market.

Upward Revision in Logic

The increasing demand for AI chips and associated revenues is driving growth in the logic segment. These chips are finding homes in various devices, including computers, smartphones, and IoT applications. The enterprise edge market is expected to be a key factor in 2025, with smaller, cheaper, and less powerful versions of these chips becoming a significant part of computers and smartphones. The growing demand for components and technologies used in gen AI chips, such as chiplets, is expected to fuel silicon-wafer shipments in 2025.



Downward Revision in DRAM

The downward revision in DRAM is primarily due to the cyclical nature of the industry and the increased competition in the DRAM market. The market for DRAM is highly concentrated, with three major players (Samsung, SK Hynix, and Micron) accounting for over 90% of the market share. This intense competition has led to a decrease in DRAM prices and a slowdown in the growth of the DRAM market. The increasing demand for AI chips and the shift towards more advanced technologies, such as 3D XPoint and other emerging memory technologies, are also contributing to the downward revision in DRAM.



Implications for Investment Thesis and Portfolio Allocation

The revised growth outlook and market size projections have several implications for the overall investment thesis and portfolio allocation in the China semicap sector:

1. Revised Market Size and Growth Outlook: The China Semiconductor Market size was valued at USD 179.48 Billion in 2023 and is expected to grow at a CAGR of 7.36% from 2024 to 2030, reaching nearly USD 295.06 Billion by 2030. This revised growth outlook suggests a more moderate pace of expansion compared to previous estimates, which could impact the overall investment thesis for the sector.
2. Impact on Investment Thesis: The slower growth rate may lead investors to reassess their expectations for the sector's performance and potential returns. While the market size is still expected to grow, the reduced growth rate may make some companies less attractive for investment, particularly those with high valuations or aggressive growth targets. Conversely, companies with strong fundamentals, competitive advantages, or exposure to high-growth segments within the sector may remain attractive investment opportunities.
3. Implications for Portfolio Allocation: Investors may want to re-evaluate their portfolio allocations to the China semicap sector, given the revised growth outlook. Those with a higher allocation to the sector may consider reducing their exposure, while others may see this as an opportunity to increase their allocation, depending on their investment thesis and risk tolerance. Within the sector, investors may want to focus on companies with strong fundamentals, competitive advantages, or exposure to high-growth segments, such as advanced manufacturing, AI, or 5G-related technologies. Additionally, investors may want to consider diversifying their portfolio across different sectors and geographies to mitigate risks associated with a single sector or region.

In conclusion, the revised growth outlook for the China semicap sector has implications for the overall investment thesis and portfolio allocation. Investors should reassess their expectations, re-evaluate their portfolio allocations, and consider focusing on companies with strong fundamentals or exposure to high-growth segments within the sector. Diversification across sectors and geographies may also be an effective strategy to mitigate risks.