High demand and technological advancements in AI PCBs are driving a surge in both consumption and prices for the drill bits used in their production, with related listed companies significantly expanding capacity. Following the mass production of new-generation materials and processes by AI server board manufacturers, the substantial supply gap for high-end micro-drill bits is expected to become more pronounced. Currently, within the drill bit industry, high-end tungsten steel rods are in relatively tight supply, except for a few leading firms. Some drill bit manufacturers have proactively invested in rod material R&D, with domestic companies already having their rod materials pass testing and verification, accelerating import substitution and enhancing supply chain autonomy. The main viewpoints from Founder Securities are as follows:

Key Development

The high-growth cycle and technological iteration of AI PCBs are leading to a sharp increase in the consumption and price of production consumables like drill bits, prompting significant capacity expansion by related listed firms. The importance of PCB drill bits within the AI supply chain continues to rise, and the supply-demand gap for high-end drill bits is projected to widen further. On the demand side, server upgrades are increasing PCB thickness, which requires more drill bits per hole in thicker boards, boosting overall demand. Concurrently, the layer count for new-generation AI server PCBs has jumped from the traditional 12-16 layers to 24-40 layers, significantly raising drill bit consumption per board. On the supply side, few companies can stably provide drill bits with an aspect ratio above 30x, leading to a supply shortage. Once AI server board makers begin mass production with new materials and processes, the actual shortage of high-end micro-drill bits is anticipated to become more evident.

Drill Bits Experience Concurrent Volume and Price Growth

Drill bit product prices have risen notably this year, driven by multiple factors including surging downstream demand and increasing costs of raw materials like tungsten carbide powder and tungsten rods. High-end drill bits, requiring high-precision cemented carbide substrates, precise coating technology, and strict micro-hole dimensional consistency control, have much higher manufacturing barriers than conventional products. Consequently, premium products with an aspect ratio above 30x have seen even greater price increases.

Dependence on Imported High-End Raw Material Rods Poses Capacity Expansion Risk

On the raw material front, manufacturing PCB drill bits requires ultra-fine grain cemented carbide rods (tungsten steel), where grain size, cobalt content, and porosity directly determine the bit's hardness, wear resistance, and service life. Requirements for material performance are even more stringent for high-end micro-drill bits. Currently, the tungsten steel rods needed for these high-end micro-drills are primarily imported from Japan. Previously, overseas manufacturers long dominated the high-end cemented carbide rod market, but their supply capacity is now under significant pressure due to tungsten resource constraints. Coupled with sustained downstream demand growth and a lack of expansion plans from these foreign firms, the high-end tungsten steel rod supply has become relatively tight across the drill bit industry, except for a handful of top players.

Domestic Firms Pursue Breakthroughs in High-End Rod Localization

Some drill bit companies have strategically invested in rod material development early on, possessing R&D and production capabilities for ultra-fine nano cemented carbide materials. They have begun supplying downstream key customers, covering various specifications for mainstream products. Rod materials for 0.25mm diameter PCB drill bits produced by a domestic company have passed batch testing and verification by a well-known domestic AI server board maker, with performance matching import standards. Development and testing for ultra-fine specifications below 0.25mm are also underway, accelerating the pace of import substitution and securing domestic supply chain control.

Stocks to Watch

1) AI PCB Drill Bits: Dingtai High-tech, China Tungsten High-tech, Xinrui Shares, Ouke Yibon, Minbao Optoelectronics, Jiemei Technology, Huarui Precision.

2) Tool Upstream Rod Materials: Xiamen Tungsten, China Tungsten High-tech, Jiangxi Tungsten Equipment, Boyun New Materials.

Risk Factors

Industrialization progress may fall short of expectations, downstream demand may be weaker than anticipated, and industry competition could intensify.