BREAKINGVIEWS-China IPOs put chip war battle scars on display

By Robyn Mak

HONG KONG, July 7 (Reuters Breakingviews) - Two initial public offerings offer insight into the growing pains of China's chipmakers . Moore Threads and MetaX are raising a combined 12 billion yuan ($1.7 billion) in Shanghai. Sales are surging but are dwarfed by research and development, and other costs. Their lack of technological progress also hints at the struggles national champion Huawei may be facing as Washington's export controls bite.

U.S. restrictions on overseas sales of Nvidia's NVDA.O advanced graphics processor units vital to training artificial intelligence models are creating a huge supply gap for Chinese chipmakers to fill. The $3.9 trillion behemoth currently has a 70% market share in the People's Republic, according to Shanghai-based MetaX's listing prospectus. Moore Threads, founded by a former Nvidia employee, expects domestic substitution will accelerate in the Chinese AI GPU market, forecast to generate over $90 billion in sales by 2029.

Indeed, booming top line growth validates this trend, which Nvidia boss Jensen Huang has publicly decried as a "failure" of U.S. policy. MetaX saw its revenue grow 14-fold, to 743 million yuan ($104 million) in 2024, while Moore Threads' more than tripled over the same period, to 438 million yuan. But next to Huang's behemoth, the pair are minnows: even on Nvidia's roughly 64 times trailing revenue multiple, MetaX's enterprise is worth less than $7 billion.

Both chipmakers are also deeply in the red. Net losses at Moore Threads, which was blacklisted by the U.S. in 2023 and barred from accessing American technology, were more than triple its sales last year. R&D expenses topped half a billion dollars over three years – or six times revenue over the same period.

Despite crippling R&D costs, they are currently stuck at 7-nanometer generation chip technology as U.S. curbs on chipmaking tools and equipment hinder local foundries led by SMIC 0981.HK from catching up to Taiwan's TSMC 2330.TW. The latter commercialised its 7nm products eight years ago and is on track to debut 2nm technology this year.

All those woes are probably mirrored by Huawei, Beijing's designated chip champion leading the country's self-sufficiency efforts. Its new laptop is using a 7nm chip which it debuted in 2023, Canadian research firm TechInsights found last month, hinting that it too is stuck.

To illustrate its uphill battle: Huawei's flagship AI chip can deliver roughly 60% of the performance of Nvidia's H100 offering, according to industry researchers, and that gap has widened with the U.S. group's recently launched chip that promises 2.5 times more performance than the previous generation. U.S. restrictions are taking their toll on Chinese chipmakers.

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CONTEXT NEWS

Two Chinese artificial intelligence chip companies are planning to raise a combined 12 billion yuan ($1.7 billion) in initial public offerings in Shanghai, according prospectuses filed on June 30.

Beijing-based Moore Threads plans to raise 8 billion yuan, while Shanghai-based MetaX seeks 3.9 billion yuan.

The two firms design graphic processor units to compete with Nvidia products and have reported steep losses over the last three years.