In Depth: Big Questions Loom as China’s Memory Chipmakers Prepare Blockbuster IPOs

1. Two Chinese memory chipmakers, ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies (YMTC), are preparing initial public offerings (IPOs) on Shanghai’s STAR Market. [para. 1][para. 3] CXMT, a leading DRAM producer, aims to raise 29.5 billion yuan ($4.3 billion). [para. 2] YMTC, known for NAND flash memory, is also moving toward a listing. [para. 3] Their IPOs come amid a memory chip shortage driven by surging AI demand, which has sent prices and profits soaring. [para. 4] CXMT and YMTC are seen as China’s best hopes to compete with dominant South Korean and American firms like Samsung, SK Hynix, and Micron. [para. 4] However, the back-to-back IPO plans raise liquidity concerns for the mainland stock market, potentially siphoning funds from other technology stocks. [para. 6]

2. After years of losses and heavy capital spending, both companies have turned profitable thanks to the AI-driven upswing. [para. 7] In the first quarter of 2026, CXMT reported 33 billion yuan in net profit on revenue of 50.8 billion yuan—a sharp turnaround from a 2.8 billion yuan net loss in the same period of 2025. [para. 8] YMTC’s first-quarter revenue doubled year-over-year to over 20 billion yuan, lifting its NAND flash market share above 10%. [para. 11] CXMT’s performance reflects the frenzied global demand; DRAM contract prices nearly doubled in Q1 2026 from a year earlier, and TrendForce forecasts another 58%–63% increase in Q2 2026. [para. 9] In Q4 2025, CXMT held 7.67% of the global DRAM market, making it the fourth-largest by sales. [para. 10]

3. The planned IPOs have sparked a valuation debate. [para. 12] Based on its fundraising target and new shares, CXMT’s implied IPO valuation is slightly below 300 billion yuan. [para. 12] Some investors argue this understates its earnings potential, citing an estimated first-half profit of up to 57 billion yuan. [para. 13] A public fund manager predicts annual profit could exceed 100 billion yuan, supporting a market value of 3–4 trillion yuan, which would make CXMT China’s most valuable listed company. [para. 14] However, skeptics note the semiconductor industry’s historical cyclicality and doubt that CXMT’s blockbuster results can be sustained as the cyclical peak fades. [para. 15] Shanghai Yunji Private Equity Fund Management estimates CXMT’s market capitalization at 800 billion to 1.2 trillion yuan, based on traditional PE and PB ratios. [para. 16]

4. International investment banks have traditionally used the price-to-book (PB) ratio to value chipmakers. [para. 17] But in a May 2026 report, JPMorgan switched to a price-to-earnings (PE) ratio-based approach, citing the current semiconductor cycle. [para. 18] Yunji founder Liang Li says CXMT’s valuation looks stretched due to the industry’s cyclical nature, Beijing’s push for semiconductor self-sufficiency, and high premia awarded to new mainland listings. [para. 19] Optimists argue the AI surge has fundamentally changed the memory chip cycle, while measured production expansion makes a supply glut unlikely in the near term. [para. 20] Liang acknowledges this but cautions against ignoring cyclical risks. [para. 20]

5. Whether CXMT can maintain a high valuation depends on its ability to achieve breakthroughs in advanced products like third-generation high-bandwidth memory (HBM), which is critical for AI computing. [para. 21] The company also remains vulnerable to supply chain disruptions due to reliance on imported high-tech lithography machines, a risk that must be factored into its valuation. [para. 22]

6. The crowding out of capital is a growing concern. Semiconductor stocks have become the dominant destination for leveraged money in the mainland stock market, attracting 91.8 billion yuan in net margin-financing purchases this year. [para. 23][para. 24] Private equity analysts warn that CXMT’s 29.5-billion-yuan IPO, combined with post-listing market value surges, could reduce investment funds available for other tech stocks by 5%–10%. [para. 25] The rally is almost entirely driven by technology stocks, meaning any squeeze on liquidity has no outlet for relief. [para. 26]