Semiconductor Industry: Investment Opportunities amid Northbound Capital Inflows and the Domestic Substitution Wave

Keywords

Semiconductors; northbound capital; industry rotation; domestic substitution; A-shares

Introduction

As the foundation of modern information technology, the semiconductor industry has become increasingly strategic in an era of profound global change. From smartphones to artificial intelligence, and from 5G communications to smart vehicles, semiconductor chips permeate every corner of the economy and society. In recent years, the global semiconductor market has experienced cyclical fluctuations, while China, the world's largest semiconductor consumption market, has accelerated the building of a self-reliant industrial chain. Against this backdrop, A-share semiconductor stocks have become a focus for institutional capital. Since 2025, northbound capital has continued to flow into the A-share semiconductor sector, showing clear industry rotation characteristics. This not only reflects international investors' long-term confidence in China's tech rise, but also highlights the market's structural preference for specific sub-sectors. Based on current market data, this article provides an in-depth analysis of the semiconductor industry's investment logic and future trends.

1. Sharp Inflows of Northbound Capital: Signals and Logic

According to market data, since Q2 2025, northbound capital has significantly increased its allocation to A-share semiconductors. Taking the latest data on June 28 as an example, northbound capital recorded net inflows of more than 10 billion yuan that day, with the semiconductor sector contributing about 30% of the net purchases. This is not a coincidence, but the result of multiple factors resonating.

The chart above vividly shows the rotation of northbound capital across A-share industries. From the beginning of 2025 to now, funds have gradually shifted from traditional consumer and financial sectors toward technology growth areas, and semiconductors are at the core of this round of "technology revaluation." From a valuation perspective, after adjustments over the past two years, the sector's overall P/E ratio has fallen below its historical median, offering a relatively high margin of safety. More importantly, Chinese semiconductor companies have continued to raise R&D intensity, and some firms have achieved breakthroughs in analog chips, power devices, and memory chips. As the performance realization of domestic substitution has strengthened, long-term foreign capital that values fundamentals has been drawn in.

2. Structural Opportunities in Industry Rotation: From Equipment to Design, from Materials to Packaging and Testing

Inflows of northbound capital are not evenly distributed; they show clear industry rotation characteristics. At this stage, funds prefer links in the semiconductor value chain with "high barriers, high growth, and low domestic localization rates."

Semiconductor equipment and materials are the first sub-sectors to benefit. Capital expenditure for domestic wafer fabs remains elevated, and leading equipment makers such as Naura Technology Group and AMEC have full order books. At the same time, the domestic localization rate for silicon wafers, photoresists, specialty gases, and other materials remains below 20%, leaving vast room for substitution. Northbound capital has strong willingness to allocate to these "chokepoint" areas because their earnings growth is relatively certain and less affected by global chip cycle swings.

The IC design segment shows clear divergence. Consumer electronics chips, such as RF and Bluetooth chips, have been subdued due to a slow recovery in downstream demand; however, demand for automotive electronics and industrial control chips continues to surge, and revenue growth at related design companies remains above 20%. In addition, demand for computing chips used in training and inference for large AI models has soared, and domestic GPU and NPU makers have made breakthroughs in government and enterprise markets, becoming a new hotspot for capital pursuit.

Advanced packaging, a key path for improving chip performance in the post-Moore era, has also attracted significant attention. Companies such as JCET and Tongfu Microelectronics have already entered mass production for 3D packaging and Chiplet technologies, and northbound capital's allocation to this area has increased by nearly 10 percentage points month over month.

3. Industrial Policy and the External Environment: Two-Way Drivers

At the macro level, the third phase of the National Integrated Circuit Industry Investment Fund was officially established in early 2025, with registered capital exceeding 300 billion yuan, focusing on advanced process manufacturing, high-end equipment, and EDA software. This policy signal directly boosted market sentiment, and the inflow pace of northbound long-term capital also accelerated accordingly.

Externally, export controls imposed by the United States, Japan, the Netherlands, and others have caused short-term pain for China's semiconductor industry, but they have also forced the acceleration of domestic substitution. For example, in mature-process manufacturing, China's global share of wafer foundry capacity has increased from 15% in 2020 to 25% in 2025, while yields continue to improve. This "evolution under pressure" has enhanced, rather than weakened, the international competitiveness of some Chinese semiconductor companies, forming a solid fundamental basis for foreign allocation.

4. Risk Warnings and Investment Outlook

Although the semiconductor industry remains favorable over the long term, two short-term risks still warrant caution: first, the global chip cycle may enter an inventory adjustment phase in 2026, causing earnings volatility for some companies; second, geopolitical competition may disrupt cross-border capital flows and affect the continuity of northbound capital.

Looking ahead, we suggest investors focus on three themes: first, deeper domestic substitution, prioritizing leading equipment, materials, and EDA companies; second, AI compute power, focusing on GPUs, HBM memory, and advanced packaging; third, automotive intelligence, emphasizing automotive-grade chips and power semiconductors. As northbound capital's allocation shifts from broad-based rallies to greater divergence, fundamental stock selection will become even more important.

Conclusion

The semiconductor industry is now in a triple-resonance phase of "cyclical bottom + accelerated domestic substitution + increased foreign allocation." The continued net inflow of northbound capital is both recognition of Chinese tech companies' R&D capabilities and a vote for the industry's long-term growth potential. From equipment and materials to design and manufacturing, and from advanced packaging to AI chips, each technological breakthrough and capacity ramp-up may give rise to new investment opportunities. While grasping the rhythm of industry rotation, investors should adhere to value-investing principles and choose names with true core competitiveness and clear growth visibility in order to earn long-term returns in this technology marathon.