Cambrian: $300B Market Cap, Still Losing Money
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On January 10, the AI chip manufacturer, Cambricon (688256.SH), saw its stock price jump by 9.19%, reaching a record high of 777.77 yuan per shareAt one point, its market capitalization soared to 320 billion yuanHowever, by the close of trading, the stock's gains had moderated to a 2.48% increaseSince October 2024, Cambricon's stock has shown remarkable volatility and growth, starting at 289.16 yuan per share on September 30, 2024, and rising to 712.29 yuan per share as of January 9 this year, marking an impressive cumulative increase of nearly 200%. When compared to the stock’s low point around 103 yuan per share from February last year, this represents almost a sixfold rise.
Focused on artificial intelligence (AI) chips, Cambricon offers a range of products including cloud AI chips, accelerator cards, complete training machines, and edge products, with applications in cloud servers and data centers
The company's business also extends to IP licensing, software, and intelligent computing cluster systemsAccording to its financial statements, Cambricon has developed critical technologies for complex chip physical design using advanced processes like 7nm, applied to several of its chip designs such as the Siyuan 100 and Siyuan 370. Notably, a significant portion of the company's revenue comes from its intelligent computing cluster businessCambricon has disclosed partnerships with major players like Zhixiang Future and Baichuan Intelligence, with its cloud AI accelerator cards already in use with China Mobile.
As one of China's leading AI chip manufacturers, Cambricon is often compared to industry giant NVIDIA, as its AI chips also cater to the realm of large-scale modelsThe company is currently developing a new generation of smart processor microarchitecture and instruction sets, which are set to optimize training and inference in natural language processing, video image generation, and recommendation systems
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Additionally, the company's software training platform has expanded its support for mainstream networks like the Llama3 series and Qwen series.
Recent financial reports reveal that as of the end of the third quarter of 2024, Chairman Chen Tianshi held 28.63% of Cambricon's sharesOn the 2024 Hurun Rich List, as of the end of August, Chen's wealth was estimated at 32 billion yuan, reflecting a remarkable rise in his ranking by 150 placesWith Cambricon's stock price surge, the market value of the shares he holds is now over 80 billion yuan.Examining the scale of the AI chip market, estimates from the Forward Research Institute suggest that by 2024, the global AI chip industry market size will reach approximately $90.2 billion, an increase of $33.8 billion from the previous year, with a projected compound annual growth rate of 24.55% over the next five years
In China, the AI chip sector's compound annual growth rate has been an impressive 79.9% over the past five years, with expectations of reaching a market size of 144.7 billion yuan in 2024. However, a look at the components of the AI chip market reveals that in 2023, 85% of China's AI chip market consisted of GPU (graphics processing unit) chipsCurrently, NVIDIA dominates this segment, while Cambricon’s designs and research focus on non-GPU smart chips.
As the AI chip market expands, Cambricon's revenues have indeed surged in the past year’s first three quarters, but the company still grapples with lossesIn the third quarter of 2024, Cambricon reported revenues of 121 million yuan, up by 284.59% year-over-year, totaling 185 million yuan for the first three quarters, a year-over-year growth of 27.09%. Despite these revenue increases, the net profit for the first three quarters stood at a loss of 724 million yuan, reducing losses by approximately 83 million yuan compared to the same period last year.
Despite returning zero profits, Cambricon's research and development (R&D) expenses have remained high, exceeding revenues in the last three quarters of the previous year
R&D expenditures during this period amounted to 659 million yuan, representing an astonishing 355.65% of its total revenueHowever, in a bid to align finances, Cambricon has begun to scale back its R&D investment, with a reduction of 8.13% year-over-year, now accounting for a 136.36 percentage point drop in revenue share.
The company expounded on this strategy shift, indicating that it has been systematically halting certain R&D projects with low expected gross marginsBy the end of the third quarter, Cambricon had experienced a contraction in total assets and cash reservesBy that period’s end, the total assets stood at 6.095 billion yuan, a reduction of 486 million yuan from the third quarter of 2023. Cash and cash equivalents summed up to 958 million yuan, a decrease of 910 million yuan compared to the same period last year
Nonetheless, the quarterly report highlighted a positive indication: by the end of the third quarter, Cambricon's prepaid expenses had risen to 854 million yuan, an increase of 700 million yuan since late 2023.
According to a research report by Minsheng Securities in December 2023, Cambricon's inventory amounted to 1.015 billion yuan at the end of the third quarter, significantly exceeding the approximate 100 million yuan recorded at the end of 2023. This increase in prepaid expenses could indicate a gradual easing of the company's chip production capacityMoreover, a report from Everbright Securities emphasized that Cambricon is one of the rare AI computing chip manufacturers in ChinaWith domestic demand for computing power on the rise, it is expected that downline large internet companies and other sectors will ramp up their procurement needs
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