In the semiconductor race, China has new competitors - and they appeal to Western investors

By Valentin Grille - Montage Technology made a flying start in Hong Kong this month. This is the latest episode in a series of flourishing IPOs, where Beijing-backed companies meet investors seeking exposure to China's semiconductor ambitions.

Montage Technology doesn’t manufacture anything. Yet its stock has doubled on the Hong Kong market since its IPO on February 9th. Shares offered at HK$106.89 quickly climbed to around HK$168 and have remained high since, reaching HK$211 this Tuesday around 5 pm.

“Three years ago, these stocks were already among the sector's favorites. Traditionally, they trade at a discount of around 40% compared to mainland China when they list in Hong Kong, but we are now seeing a premium of around 10%. There is a strong scarcity effect,” says Xiadong Bao, Asian equities specialist at Edmond de Rothschild AM.

Montage is a key company in the complex chips’ value chain, designing chips able to control memory chips. “There has been a misunderstanding about Montage. It is often compared to Micron and SK Hynix, but it is not a RAM company. They make chips that control RAM chips - mechanisms within mechanisms. It is a niche business that coordinates flows,” describes Rolando Grandi, CIO & Fund Manager at Itavera AM. Their connectivity chips are used by SK Hynix and Samsung - with fruitful returns: a compound annual net profit growth of 47% between 2024 and 2027, Citi analysts predict.

Montage is a pure hardware company, competing with Rambus in the US and Renesas in Japan. Another edge in the eyes of Western investors. “Since the ‘Deepseek moment,’ technology investors have been increasingly looking for ‘pure’ Chinese tech companies - unlike diversified groups such as Alibaba or Tencent,” explains Xiadong Bao.

Mainland stock vs. Hong Kong alternative

It is not the only company to make dazzling debuts in recent months - or aim to do so. Moore Threads scored a $1.1bn listing in Shanghai in December. A direct rival to Nvidia, the company was founded by Zhang Jianzhong, former China head of the global chips leader.

It was former AMD executives who founded MetaX - which raised $600 million during its IPO in December, in Shanghai. MetaX Integrated Circuits now trades around CNY 500, five times the price initially offered. On the memory shelf, Changxin Memories now eyes a $4.2 billion IPO in Shanghai.

Some list on mainland China, others choose Hong Kong for a double or single listing. “You need to be profitable to access Market A in Shanghai,” explains Xiadong Bao. “And by listing on the HKEX, Montage diversifies its investor base to raise more capital and attract more buyers, incentivize its management through bonuses, and refinance more easily on the secondary market. This is an important lever to fund capex and R&D.”

“Most international IPOs take place in Hong Kong, because it is easier for non-Chinese investors to participate. Unlike Shanghai, they don’t need to go through the Shenzhen-Hong Kong Stock Connect, designed by China to control capital flows. Other companies play it 100% local to address the local ecosystem and avoid reporting requirements in English,” Rolando Grandi recalls. In Shanghai, tech players can count on mutual funds and a growing crowd of retail investors; in Hong Kong, they can surf on Western appetite.

Meet the new "decoupling" protagonists

A strong appetite despite ongoing political turmoil surrounding the tech battle between the US and China. “The two main Chinese memory chip manufacturers, ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies Co (YMTC), were expected to be worth around US$40 billion each. Montage, a purely fabless company, already weighs US$30 billion, as a simple proxy for the Chinese chips industry,” Xiadong Bao emphasizes.

He foresees possible corrections but considers Montage to be a rare company with a strong commercial pipeline. “Needs are there, there is huge demand. The hard part will be becoming profitable. Montage and the Chinese companies currently experience very low yields - half of the chips actually make the cut,” Rolando Grandi estimates.

Twenty-three semiconductor companies pulled their IPOs, and more than 14,000 were deregistered in 2024, according to several Chinese media sources - a steep increase from 2023.

But Beijing pursues its decoupling strategy, launched a decade ago to ensure technological independence from the US industry. The regime supports and protects domestic companies, offering them institutional funding and domestic markets - until one of them proves stronger than the others.

“Beijing doesn’t need competition and would rather develop monopolies or easily overlooked duopolies. They need domestic champions, and we now see hardware competitors to US solutions developing, just as Baidu, Alibaba, and others did 15 years ago against Google and Microsoft on the software side,” Rolando Grandi analyzes.

Whereas Nvidia’s H200 still represents a lifeline for China, 70% of the chips used in the country in 2030 are projected by the regime to be domestically produced. And in this new cold war, Montage and the others now attract Western supporters, eager to diversify from their US tech exposure.