From “Chokepoint” to Self-Reliant Breakthroughs: Reshaping the Global Semiconductor Landscape and Investment Opportunities
Keywords
Semiconductors, chip industry chain, self-reliance and controllability, domestic substitution, advanced process nodes, capital flows, tech recovery
Introduction
Semiconductors, the 'heart' of modern electronics, are not only the physical foundation of information technology but also a key yardstick of a country's scientific strength and industrial competitiveness. From smartphones to supercomputers, from 5G communications to artificial intelligence, from new energy vehicles to aerospace, chips are everywhere, and their strategic importance cannot be underestimated. However, in recent years, intensifying geopolitical rivalry has dealt an unprecedented shock to semiconductor supply chains. The intertwined problems of a 'chip shortage' and 'chokepoints' have forced countries to reassess industrial security and development paths. Against this backdrop, the global semiconductor industry is undergoing a profound reshaping: on one hand, traditional silicon-based processes are approaching physical limits and Moore's Law is slowing; on the other, emerging economies represented by China are accelerating localization and striving to break technological blockades. At the same time, capital markets have grown increasingly interested in the semiconductor sector, with Southbound Stock Connect inflows into Hong Kong's tech sector standing out in particular, signaling both an industry recovery and a rebalancing of investment logic. This article will analyze the semiconductor industry from four dimensions: industry status, China's breakthrough path, capital trends, and future developments.
I. Global Semiconductor Industry: Challenges and Opportunities in a Shifting Landscape
1.1 Supply Chain Restructuring and Geopolitical Competition
Today, the global semiconductor industry relies heavily on cross-border division of labor: the United States dominates chip design, EDA software, and IP cores; the Netherlands and Japan form an oligopoly in key equipment such as lithography machines and materials; while South Korea and Taiwan enjoy clear advantages in memory chips and advanced foundry processes. However, led by the United States, Western countries have frequently imposed export controls, technology blockades, and investment reviews in recent years in an effort to restrain the development of China's semiconductor industry. The 2022 Chips and Science Act and subsequent restrictions on sales to China have pushed the global semiconductor supply chain from 'efficiency first' to 'security first'. This artificial fragmentation has not only raised industry-wide costs but also fueled a wave of local factory building in multiple countries, with TSMC, Samsung, Intel, and others rushing to set up new lines in the United States, Japan, and Germany. The global semiconductor industry is moving from 'global collaboration' toward 'regional clusters'.
1.2 Slowing Moore's Law and Exploration of New Technologies
As transistor dimensions approach the atomic scale, the cost of shrinking traditional silicon-based CMOS processes has risen sharply. R&D spending for nodes below 7 nm can run into tens of billions of dollars, while physical bottlenecks are becoming increasingly apparent: leakage, heat, and quantum tunneling effects are all getting worse. Even so, the industry has not stopped exploring. The maturity of extreme ultraviolet lithography (EUV) has made 3-nanometer and 2-nanometer processes possible; advanced packaging such as Chiplet and 3D stacking extends performance gains through heterogeneous integration; and new materials such as silicon carbide (SiC) and gallium nitride (GaN) are opening new tracks in power semiconductors. These technological advances are not only reshaping market competition, but also creating a potential chance for China to overtake on a curve in the post-Moore era.
II. China's Semiconductor Industry: The Difficult Road to Self-Reliant Breakthroughs
2.1 Policy Support and Industrial Ecosystem Building
Faced with external blockades, the Chinese government has made the semiconductor industry a core part of the national strategic science and technology force, injecting resources through the 14th Five-Year Plan and the National Integrated Circuit Industry Investment Fund (the Big Fund). At the policy level, support across the full chain - from design and manufacturing to packaging and testing, equipment, materials, and EDA tools - has gradually become more complete. Notably, the STAR Market has become an important financing platform for semiconductor companies. By 2025, more than 100 semiconductor-related companies had been listed, raising a cumulative total of more than RMB 100 billion and providing a solid capital backing for R&D investment.
2.2 Progress and Bottleneck Analysis Across the Chain
In chip design, companies such as HiSilicon, UNISOC, and T-Head are already internationally competitive in mobile SoCs, AI chips, and IoT chips, but they still face the awkward reality of 'being able to design but not manufacture' due to limited advanced foundry capacity. In manufacturing, SMIC has achieved mass production at 14 nm, but advanced nodes below 7 nm remain constrained by lithography tool embargoes and are difficult to break through in the short term; Hua Hong Semiconductor focuses on specialty processes (such as CIS, IGBT, and power devices), building differentiated advantages. In packaging and testing, JCET and Tongfu Microelectronics are globally leading, but there is still a gap in advanced packaging. Equipment and materials are the weakest links: lithography machines, ion implanters, high-purity wafers, photoresists, and other key categories remain heavily dependent on imports, with a domestic substitution rate below 15%. This is currently the most severe chokepoint.
2.3 The Path from 'Substitution' to 'Innovation'
In the long run, China's semiconductor industry cannot be satisfied with domestic substitution alone; it must pursue original innovation. In frontier areas such as the open-source RISC-V instruction set architecture, compute-in-memory chips, quantum computing, and photonic chips, China is starting from the same line as the rest of the world. At the same time, by leveraging its huge domestic demand market (new energy vehicles, industrial robots, smart homes, and more), it can use applications to pull demand and gradually form a positive cycle.
III. Semiconductor Investment Logic in Capital Markets: From Frenzy to Rationality, Signs of Recovery Emerge
3.1 Southbound Stock Connect Inflows and a Rebound in the Tech Sector
In the first half of 2025, Southbound Stock Connect funds continued to flow into Hong Kong tech stocks, with the semiconductor sector becoming an important allocation direction. According to market data, southbound capital recorded a net inflow of more than HK$40 billion in a single month, a two-year high, and semiconductor ETF holdings rose significantly. Behind this were multiple positive factors working together: the global chip inventory cycle bottomed out, downstream demand from consumer electronics and new energy vehicles recovered, explosive growth in AI computing demand pushed high-end chips such as GPUs and HBM into short supply, and China's push for self-reliance and controllability accelerated, reigniting capital market expectations for domestic substitution.
The chart above shows the relationship between Southbound Stock Connect inflows and the performance of Hong Kong's tech sector. As macro liquidity improves, expectations for Federal Reserve rate cuts become clearer, and China's digital economy strategy deepens, semiconductors - the subsector with the highest technical barriers and the strongest earnings leverage - have been among the first to attract capital.
3.2 Valuation Recovery and an Earnings Turning Point
Over the past two years, due to global chip oversupply and weak downstream demand, semiconductor indices experienced sharp corrections, and the price-to-earnings ratios of some leading companies fell to historical lows. But from the second half of 2024, industry conditions began to recover from the bottom. Take memory chips as an example: after seven straight quarters of declines, DRAM and NAND Flash prices stabilized and rebounded in the first quarter of 2025, and the earnings of giants such as Samsung, SK hynix, and Micron beat expectations. Wafer foundry utilization also recovered from below 70% to above 85%, and second-tier foundries saw order books fill up. This marginal improvement in earnings, combined with favorable policy signals, has pushed the semiconductor sector into a valuation-recovery channel.
3.3 Investment Themes: Focus on Chokepoints and New Growth
Looking ahead, semiconductor investment can be built around two main themes: first, breakthroughs in chokepoint areas, including EDA tools, lithography machine components, high-end reticles, ion implantation equipment, and similar assets, which are scarce and highly leveraged; second, new-growth areas, including AI chips (such as NPU, DPU, and compute-in-memory), automotive-grade chips (SiC power devices, MCU), advanced Chiplet packaging, and third-generation semiconductor materials. Domestic penetration in these sub-sectors is extremely low, but technology iteration is fast and market space is large, making them likely to incubate global leaders.
IV. Future Trends: Four Forces Reshaping the Industry
4.1 Third-Generation Semiconductors and Wide-Bandgap Materials
With high breakdown electric field strength, high electron mobility, and strong heat resistance, silicon carbide and gallium nitride are surging in electric vehicles, charging stations, 5G base stations, photovoltaic inverters, and more. Yole forecasts that the global SiC power device market will exceed US$10 billion in 2027. Although China started later in this field, capacity expansion is rapid, and listed companies such as Sanan Optoelectronics, SICC, and Silan Microelectronics have already built out their industrial chain layouts, with the potential to break overseas monopolies in the future.
4.2 Chiplet and Advanced Packaging
Chiplet technology integrates small chips with different process nodes and functions through high-density interconnects, like assembling puzzle pieces, enabling heterogeneous integration that 'breaks a whole into parts' and effectively lowering costs while improving yields. This trend will reshape the position of advanced packaging. TSMC's 3D Fabric and the advanced packaging platforms of Intel and Samsung have all become core competitive advantages. Domestic companies such as JCET, Tongfu Microelectronics, and Huatian Technology are already deeply involved and are cooperating with customers such as Huawei and AMD, giving them broad prospects.
4.3 Compute-in-Memory and the AI Chip Architecture Revolution
In the traditional von Neumann architecture, data is moved frequently between memory and processors, creating the 'memory wall' and a power bottleneck. Compute-in-Memory embeds the computing unit into the memory array, allowing data operations to be completed directly in memory, boosting speed by dozens of times and reducing power consumption by two orders of magnitude. In AI inference and edge computing scenarios, compute-in-memory chips are moving from laboratories to mass production. In addition, new paradigms such as neuromorphic chips and brain-inspired computing are also accelerating toward implementation, and China's scientific papers and patents in this field are already among the world's leaders.
4.4 'Domestic Substitution 2.0' for Semiconductor Equipment and Materials
On the equipment side, Naura Technology, AMEC, ACM Research Shanghai, and Piotech have achieved mass sales in etching, thin-film deposition, cleaning, ion implantation, and other segments; on the materials side, Shanghai Simgui Technology has made breakthroughs in 300 mm wafers, Red Avenue New Materials in ArF photoresists, and Yoke Technology in high-purity precursors. However, domestic equipment and materials companies generally hold less than 5% market share, leaving more than ten times the growth room compared with international giants. With continued investment from the third phase of the Big Fund and local industrial funds, the next five to ten years will be a golden period for accelerated penetration of domestic equipment and materials.
Conclusion
Semiconductors are a 'child of globalization', yet they are shrouded by the shadow of geopolitics. Today, this industry is at the intersection of multiple turning points: technological inflection, supply-chain reshaping, and capital competition. For China, the pain of chokepoints is both a challenge and a forcing mechanism, pushing the entire chain from dependence toward self-reliance. From a capital-market perspective, the continued inflow of Southbound Stock Connect funds signals the start of a tech recovery cycle, and semiconductors, as foundational hard tech, should become core long-term allocation assets.
Future competition will not be only about process-node rivalry, but also about ecosystem building, talent development, and breakthroughs in basic science. Only by staying focused and working steadily over time can one seize the initiative in this smokeless war in semiconductors. For investors, understanding industry dynamics, grasping technological direction, and positioning for certainty of growth during valuation troughs is the smart way to weather cycles.
