China’s leading semiconductor foundries, SMIC and Hua Hong Grace Semiconductor, reported explosive profit growth in Q2 2026, driven by escalating demand for domestic AI chips unaffected by US export controls.
- SMIC’s Q2 net profit rose 261.7% to $479.2 million
- Hua Hong’s net profit surged 385.9% to $38.6 million
- AI chip demand and local supply chain push capacity utilization higher
What happened
Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Grace Semiconductor, China’s top two contract chip foundries, each reported triple-digit increases in net profits for the second quarter of 2026. SMIC posted net profits of $479.2 million, a 261.7% increase year-on-year, while Hua Hong’s profits jumped 385.9% to $38.6 million. Revenues also rose notably—SMIC’s revenue reached $3 billion and Hua Hong’s a record $717.5 million in the quarter.
These gains are driven by heightened domestic demand for AI chips that bypass US export restrictions. Both foundries ramped up production to full capacity in response to surging orders from tech giants and startups eager to expand AI computing capabilities. The companies forecast sustained momentum into the second half of 2026 and beyond, with plans to allocate existing capacity flexibly while accelerating new capacity development.
Why it matters
The rapid profit growth underscores China’s push towards technology self-sufficiency amidst an environment of tightened US export controls on chipmaking equipment. By focusing on domestic AI chip production, Chinese foundries are capitalizing on a critical market opportunity fueled by the AI boom. This helps reduce reliance on foreign suppliers and strengthens China’s semiconductor ecosystem.
Furthermore, the strong financial performance of SMIC and Hua Hong serves as a key indicator of market demand dynamics and supply chain resilience. It reflects the effectiveness of Beijing’s strategic drive to localize chip manufacturing and the growing role of AI as a secular growth driver in China’s semiconductor sector. Analysts anticipate that AI chip fabrication demand could represent a multibillion-dollar addressable market for domestic foundries in the years ahead.
What to watch next
Investors and industry observers should monitor the upcoming revenue guidance for Q3 2026, where SMIC expects between $3.06 billion and $3.12 billion, and Hua Hong projects revenue in the $770 million to $780 million range. Both expect to maintain high capacity utilization amid continued AI chip demand growth, with supply constraints remaining a key factor influencing production and pricing.
The broader ecosystem, including related AI chip designers like Iluvatar Corex and major tech companies such as Lenovo, also showed promising results, highlighting a favorable technology and investment climate. Future developments in US-China trade policies, chip equipment availability, and technological advances in AI chip fabrication will be critical in shaping the trajectory of China’s semiconductor sector moving forward.