In recent months, an intriguing phenomenon has emerged in the realm of China's technology sector, centered around a prominent player in the AI chip market: Cambricon TechnologiesSince its public listing on the STAR Market in July 2020, Cambricon has witnessed a meteoric rise in its stock price, surging nearly fourfold by the end of last yearThis climb continued into 2024 when its share price exceeded 700 yuan, bringing its market capitalization close to 300 billion yuanThe dynamics surrounding Cambricon have sparked comparisons to Nvidia, the global leader in AI chips, leading to a flurry of debates within investment circlesDespite this impressive trajectory, concerns surrounding the sustainability of Cambricon's growth and the viability of its business model have begun to surface.

The recent spike in Cambricon's share price has given rise to a playful jab among investors: “There’s a 1% chance that Cambricon becomes the next Nvidia; hence, it can be valued at 1% of Nvidia’s worth.” On January 8, Nvidia’s stock closed at approximately $140, with a market capitalization of around $3.4 trillion—an astronomical figure

Excitement peaked for both companies as Nvidia's stocks neared $150 the day priorHowever, following a disappointing Consumer Electronics Show (CES) presentation, many investors decided to cash in on their profits, leading to a slight retracement in Nvidia's share price.

Despite Nvidia's struggles, Cambricon managed to continue its ascent, with its market value now hovering around 310 billion yuanNotably, a prominent figure in the electronic research community relayed his discussions with a senior leader in Huawei's computing development platform, expressing confidence that Cambricon could reach a market cap between 500 and 600 billion yuan, a sentiment that quickly found its way onto social media, prompting a swift exit from the group chat by the source—demonstrating the sensitivity and speculation in this space.

Interestingly, Cambricon’s journey since its inception has been anything but straightforward

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For the first two years following its IPO, the stock did not exhibit significant movementIt wasn’t until the overwhelming success of ChatGPT at the end of 2022 that investors began to notice its potential to meet domestic chip needs, exacerbated by the vast opportunities in the AI chip marketIn 2023, Cambricon’s price skyrocketed, eclipsing 200 yuan, and when the “924 market” took off, the momentum intensifiedThe company’s inclusion in the Shanghai Stock Exchange's 50 Index on November 29 significantly enhanced its profile, leading to its characterization as “King of Cold” in the investing community.

However, a juxtaposition emerges when considering that despite the euphoric stock price rallies, Cambricon’s financial health remains precariousWhile revenues grew rapidly from 2017 to 2021, the years 2022 and 2023 saw stagnation and even declines, with an accumulated loss of approximately 4.9 billion yuan since its founding

Even in the first three quarters of 2024, while a slight revenue recovery occurred, the company still operates at a loss.

In the fierce arena of high-tech industries, it is not uncommon for companies to post continuous lossesHowever, for Cambricon, the real concern lies in the intensity of competition within the AI chip marketBesides international giants like Nvidia and Intel, a multitude of domestic challengers—such as Huawei’s HiSilicon and Moore Threads—vie for dominanceThe question looms: can Cambricon's soaring market cap sustain a worthy alignment with its competitive footing? Moore Threads, for instance, has made rapid progress since its creation just four years ago, completing four rounds of upgrades and securing 425 patents, placing it among the air of first-tier GPU players in the Chinese market.

Others in this vibrant space include Jingjia Micro, Biren Technology, Tensun Intelligent, and Suiruan Technology, all advancing at remarkable speeds

The relentless evolution of AI technology implies that if Cambricon cannot keep pace with these advancements, its leading edge may quickly erodeIn this landscape, the lofty price-to-book ratio of 50 times for Cambricon becomes an evident source of skepticism among market analysts.

From a technical and product perspective, Cambricon initially enjoyed a first-mover advantage in AI chipsIt once solidified its position as a crucial provider of IP licensing for Huawei’s terminal chipsHowever, the emergence of Huawei's proprietary products has severely disrupted Cambricon’s core businessMoreover, the company's dependency on a limited number of large clients has shifted its strategic foundation, risking instability as its primary clients frequently change.

Additionally, when looking at talent acquisition—an essential driver for hard tech companies—Cambricon falls short compared to giants like Huawei, which boasted 45% of its workforce engaged in R&D and actively sought global talent

As of mid-2024, Cambricon’s total workforce had yet to reach a thousand, showcasing a stark contrast in both quantity and quality of personnelThe nurturing and accumulation of core technical talent require both time and resources, suggesting that high valuations alone will not effectively resolve these challenges.

On a more optimistic note, it’s important to acknowledge that Cambricon has not yet exhibited any substantial signs of major shareholders preparing to offload their stakesFor a company persistently operating at a loss, this represents a significant advantage in the A-share marketFurthermore, announcements from the Shanghai Stock Exchange and the China Securities Index Company concerning the issuance of new indices indicate forthcoming institutional investments, potentially directing more capital into Cambricon.

Amidst the ongoing skepticism, the future trajectory of “King of Cold” and its potential transformation into “China's Nvidia” stands as a central enigma for the technology sector in China as 2025 approaches