Citigroup: Memory prices expected to continue rising in the second half of the year, favoring companies like Montage Technology (06809).

Citibank released a research report stating that the bank met with over 50 investors in New York, Boston, and San Francisco from July 13th to 17th. The bank found that American investors are very concerned about the sustainability of the trends in storage and AI capital spending, with many hesitant to buy during recent declines. The main worries focus on the slowdown in capital spending by American hyperscale cloud service providers, increasing memory supply from China, and the disruption from Chinese AI models like Kimi K3. However, the bank believes that concerns about aggressive capacity expansion by Chinese memory manufacturers are unlikely to materialize between 2026 and 2027. The bank also expects prices to continue rising in the second half of 2026, with a preference order of analog chips > packaging & testing (OSAT) > power discrete components. The bank anticipates that the upward trend in pricing for Chinese analog chips will continue due to (1) international analog chip suppliers raising prices (in April and July) accelerating the localization of analog chip supply, and (2) increasing domestic demand for analog chips from network/computing applications. Considering that most Chinese analog chip suppliers do not have fabs, supply growth should be limited. Prices for Chinese packaging and testing may continue to rise in the second half of 2026 due to tight capacity utilization. Power discrete components may also see price increases, but Chinese integrated device manufacturers (IDM) may also add capacity. Citibank is bullish on (1) Montage Technology A shares (688008.SH) despite a preference among American investors for Montage Technology (06809) H shares, due to its strong fundamentals (reaching record revenue and profit in the second quarter of 2026) and product pipeline (RCD Gen3-4-5, MRCD/MDB, PCIe retimer/switch, CXL). The valuation is attractive following a recent antitrust investigation in Korea. (2) ASMPT (00522), as the bank expects the backend capital spending supercycle to drive the uptrend in Thermo Compression Bonding (TCB) and the rebound of semiconductor capital equipment stocks after Longxin Storage's IPO. (3) Chime Electronics (2360.TW), due to multiple AI-driven growth drivers (system-level testing, power testers, metrology, photonics/CPO). Despite recent profit-taking in the market, the fundamentals remain strong. (4) SG Micro Corp (03661), as the bank expects the uptrend in pricing in the second half of 2026 to drive revenue/profit growth. Chinese analog chips may see their first price increase since 2022.