BOCOM International has issued a research report highlighting that SMIC (00981) delivered second-quarter results that significantly exceeded market expectations, driven by a notable increase in average selling prices. Revenue reached $3.01 billion, up 20% quarter-over-quarter, comfortably surpassing the upper end of the guidance range of 16% growth. Gross margin came in at 25.3%, up 5.2 percentage points quarter-over-quarter, also well above the upper end of the 22% guidance.

Management has guided for third-quarter revenue to continue growing 2-4% sequentially, with gross margin expected to improve to a range of 26%-28%. In light of the accelerating ASP uptrend, the brokerage has raised its target price for SMIC to HK$108 and upgraded its revenue forecasts for 2026, 2027, and 2028 to $11.88 billion, $14.94 billion, and $17.2 billion respectively, maintaining a "Buy" rating.

The firm noted that the positive impact of artificial intelligence demand is becoming increasingly evident, with pricing power gains beginning to materialize in the second quarter and likely extending into the second half of the year. This is viewed as a key driver behind the company's sequential improvement in gross margins. Management also indicated that shipments for AI-related PCs, tablets, and industrial/automotive applications grew 40% year-over-year.

BOCOM International believes that SMIC has significantly underperformed comparable wafer foundry peers since the start of the year, yet the direct and indirect demand driven by AI has now fully transmitted across its various business segments, delivering clear benefits to both revenue and gross margin.