China chip profits jump 18.5-fold on AI demand; advanced-node self-sufficiency seen at 66% by 2035

The AI boom has triggered a sharp surge in chip profits, creating a powerful synergy between technology and market dynamics. Upstream design tools and IP licensors are benefiting from the demand surge, while midstream fabs are rapidly expanding capacity, especially in advanced nodes, with increasing utilization rates. Downstream applications, driven by AI model iterations, are boosting demand for high-performance memory and sensors, accelerating related supply chain growth. However, tightening policies and supply chain reshaping are forcing companies to enhance self-reliance, particularly in key equipment and materials, accelerating domestic substitution. Intensifying international competition, especially in advanced nodes and high-end equipment, is pressuring local firms with technology blockades and market access restrictions. Over the next year, capital expenditure in the domestic semiconductor sector will remain high, with domestic equipment and materials substitution rates expected to exceed 30%. If AI demand sustains growth, by 2035, the global supply chain, including China Taiwan/ Taiwan, China, will undergo significant restructuring, with local players potentially gaining cost advantages through vertical integration.