SMIC, Hua Hong profits surge triple digits on AI chip demand
Synopsis
China's top two chip foundries, SMIC and Hua Hong, posted triple-digit profit growth in Q2 2026 — with Hua Hong up nearly 386% year on year — as domestic AI developers, shut out of US-controlled advanced chips, flood local fabs with orders, pushing both companies to full capacity.
Key Takeaways
SMIC net profit rose 261.7% year on year to US$479.2 million in Q2 2026 .
Hua Hong Grace Semiconductor net profit surged 385.9% to US$38.6 million in the same period.
SMIC revenue reached US$3 billion , up 36% year on year, matching Bloomberg consensus of US$2.9 billion .
Hua Hong posted a record quarterly revenue of US$717.5 million , beating the consensus estimate of US$702.7 million .
SMIC said it will “flexibly allocate existing capacity and accelerate new capacity” to meet AI-driven demand through H2 2026 .
Demand is driven by domestic AI developers seeking chips outside the reach of US export controls .
Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Grace Semiconductor, China's two largest contract chipmakers, posted triple-digit profit growth in the second quarter of 2026, fuelled by surging domestic demand for AI chips that fall outside the scope of US export controls. The results underscore how the accelerating race to build and deploy large AI models is reshaping the fortunes of China's homegrown semiconductor industry.
Record-breaking numbers
SMIC's net profit climbed 261.7 per cent year on year to US$479.2 million in the June quarter, while revenue rose 36 per cent to US$3 billion — broadly in line with the Bloomberg consensus estimate of US$2.9 billion. Hua Hong, the smaller of the two, reported a record quarterly revenue of US$717.5 million, up 26.8 per cent from a year earlier and ahead of the consensus estimate of US$702.7 million, with net profit surging 385.9 per cent to US$38.6 million.
Why it matters
The results reflect a structural shift in China's semiconductor supply chain. As US restrictions continue to block access to the most advanced foreign chips, domestic tech giants and AI start-ups are channelling orders toward local foundries, pushing fabrication plants to full capacity. The demand is broad-based — spanning model training infrastructure, inference hardware, and AI-powered consumer applications.
“Looking ahead to the second half of this year, the industrial momentum and spillover effects generated by AI will persist, driving broad-based demand for integrated circuit manufacturing,” SMIC said in a filing to the Hong Kong stock exchange on Thursday, 13 August 2026, adding that it would “flexibly allocate existing capacity and accelerate new capacity to ease supply constraints.”
The competitive backdrop
Both foundries operate in a market increasingly defined by geopolitical fault lines. With leading-edge chips from Taiwan Semiconductor Manufacturing Co (TSMC) and advanced packaging from Samsung Electronics effectively out of reach for many Chinese AI developers, SMIC and Hua Hong have emerged as critical nodes in a parallel supply chain. Industry research firm TrendForce has previously flagged that domestic wafer demand in China is outpacing capacity additions, a dynamic now visible in both companies' utilisation rates.
What’s next
SMIC signalled it will both optimise existing lines and fast-track new capacity buildout through the remainder of 2026. Analysts at UBS and other brokerages will be watching whether the demand wave sustains into the fourth quarter or whether inventory accumulation at AI chip designers begins to moderate order flow. Any tightening of US export controls targeting mature-node chips — a scenario that has been debated in Washington — could further accelerate domestic capacity investment but also introduce fresh regulatory risk.
For now, the momentum sits firmly with China's foundry sector, and the next set of quarterly disclosures will test whether 2026's AI-driven boom has staying power.
Point of View
Washington has turbocharged the economics of China's mature-node foundry sector. What mainstream coverage often misses is that the AI models being trained on these domestically sourced chips do not always require the most advanced process nodes; efficiency gains at the software and architecture layer are narrowing the hardware gap faster than export-control architects anticipated. The risk for SMIC and Hua Hong is a different one: if US policymakers extend restrictions to mature nodes — a debate already circulating in policy circles — the current demand windfall could face a regulatory ceiling. Investors and supply-chain strategists should watch the next US Commerce Department review cycle as closely as they watch quarterly earnings.
NationPress
13 Aug 2026
Frequently Asked Questions
How much did SMIC profit grow in Q2 2026?
SMIC 's net profit grew 261.7 per cent year on year to US$479.2 million in the second quarter of 2026 . Revenue also rose 36 per cent to US$3 billion , in line with analyst estimates.
Why are Chinese chip foundries seeing record profits?
Domestic AI developers in China are redirecting chip orders to local foundries like SMIC and Hua Hong because advanced foreign chips remain inaccessible due to US export controls . This has pushed both companies' fabrication plants to full capacity, driving revenue and profit sharply higher.
What revenue record did Hua Hong set in Q2 2026?
Hua Hong Grace Semiconductor posted a record quarterly revenue of US$717.5 million in Q2 2026 , up 26.8 per cent year on year and above the Bloomberg consensus estimate of US$702.7 million . Net profit surged 385.9 per cent to US$38.6 million .
What is SMIC's outlook for the rest of 2026?
SMIC said in a stock exchange filing that “the industrial momentum and spillover effects generated by AI will persist” in the second half of 2026 . The company plans to flexibly allocate existing capacity and accelerate new capacity additions to ease supply constraints.
How do US export controls affect SMIC and Hua Hong?
US export controls restrict Chinese AI developers from accessing the most advanced chips from foreign suppliers, channelling demand toward domestic foundries like SMIC and Hua Hong . This has been a primary driver of their surging revenues, though any future extension of controls to mature-node chips could pose a new risk to both companies.
