SMIC (0981.HK): AI to drive 2H26 growth; strongest revenues QoQ in 2Q26 among global top 10 foundries; Buy

We are positive on SMIC and expect 3Q26 / 4Q26 revenues to stay at the high level of 2Q26, driving 2H26 revenues at +12% HoH, or +27% YoY, riding on the growing generative AI trend in China, supporting both its matured nodes (e.g. analog / power ICs) and advanced nodes (e.g. local AI chips), rising localization trend, and the company's continuous capacity expansion. As we highlighted in CHIPS IV, we expect China Semis Capex to grow at +13% / +15% / +15% in 2026-28E, driven by memory and advanced nodes capacity expansion. SMIC remained a global top three foundry in 2Q26 by revenues, per TrendForce, with revenues growth QoQ at 20%, outperforming the top 10 foundries' aggregate revenues growth of 11.5% QoQ, and saw the strongest revenues QoQ growth among the global top 10, reflecting China's strong AI demand and customers diversifying their suppliers to better secure capacity. Maintain Buy. Generative AI to drive growth ahead: we estimate China AI chips TAM to grow at +142% / +69% / +6% C