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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
CXMT’s initial public offering is a great illustration of what happens when tokenmaxxing meets Chinamaxxing. The chipmaker’s shares rose 466 per cent on its first day of trading in Shanghai, briefly making it China’s most valuable company.
On one hand, it couldn’t really have been otherwise. CXMT sold a tenth of its post-IPO share capital; sure, that’s twice as much as Elon Musk’s SpaceX sold in its June debut, but the $8.5bn CXMT raised is only a fraction in monetary terms. And since Chinese regulators generally don’t like expensive listings, underpricing is commonplace. Semight Instruments, a chip testing company, rose nearly 900 per cent on its debut earlier this year; the shares have risen further since.
It is worth asking whether CXMT would have done so well without those quirks. Certainly, memory chips are in high demand, and CXMT has sprung from virtually nothing to an 8 per cent market share, according to Counterpoint. But chips are a boom-bust business. Overall, consultancy Gartner sees capacity increasing by a quarter in the two years to mid-2029.
At the same time, there are nascent signs of peaking demand. Companies that rushed gleefully into using AI are starting to wince at the cost of computing tokens — units of text or text used in processing by large language models. IBM is one that has sounded the death knell for tokenmaxxing, warning that companies will instead seek to plan their AI strategy with an eye on value, rather than just trying to jack up usage.
Cycles cannot be held at bay forever, but it is true that the AI boom driving chip demand may follow a different path. New uses and configurations of hardware are emerging, which keep supply chains busy and create demand in new places. Chipmakers are turning to specialisations, too. In the US, Micron has turned its focus to servicing hyperscalers with high-bandwidth memory. Qualcomm has developed an alternative architecture that packs in more memory for less cost.
CXMT’s Chinese-ness is both an asset and a liability. Scarcity in its home market will buoy demand for its chips. Conversely, the company cannot access the latest European and US chipmaking equipment. Even that, though, may confer advantages, such as an ability to do more with less; CXMT has developed advanced packaging and other techniques with end users such as telecoms group Huawei.
Another clue that demand for its “good enough” chips remains robust: Apple, facing shortages, is seeking to persuade Washington to allow it to buy from CXMT.
Even if token pricing falls, CXMT and its peers may still continue their upward march, assuming cheaper computing power results in more demand for AI, and thus memory. Already customers are opting for open-source models, often Chinese, which they can adapt and use on their own servers or in the cloud. Globally, the AI trade may be getting bubbly, but there’s more to CXMT’s story than froth.
