Call it chip mania, silicon fever, or just good old-fashioned speculative enthusiasm. Whatever label you prefer, China's AI semiconductor industry is absolutely having its moment. And why wouldn't it be? Global chipmaking superstar Nvidia spent years in relative obscurity before exploding to become the world's most valuable company. Every upstart GPU maker in China is now hoping to catch even a fraction of that lightning in a bottle.

The evidence of this frenzy is impossible to ignore. This month alone, two homegrown AI chipmakers delivered spectacular market debuts that captivated Chinese investors. Moore Threads saw its shares rocket over 400% when it listed in Shanghai. Just two weeks later, rival MetaX did even better, soaring an eye-watering 700% on its first day of trading.

Now the race is on, and competitors are scrambling for their slice of investor enthusiasm. Enter Shanghai Iluvatar CoreX Semiconductor Co. Ltd., which last Friday made its first public filing for a Hong Kong IPO while simultaneously passing its listing hearing. The timing is notable: Iluvatar's move came just two days after rival Biren Semiconductor filed its own paperwork for a Hong Kong IPO. And both followed search giant Baidu's announcement earlier this month that it's evaluating a potential spinoff and listing of its AI chip unit, Kunlunxin, also in Hong Kong.

Reports first surfaced in August about Iluvatar's IPO plans, with the company targeting around $300 million in the offering.

Betting on GPU Hunger

The spectacular rallies of Moore Threads and MetaX signal powerful appetite among Chinese investors for general purpose GPU stocks. Iluvatar and Biren are banking on that enthusiasm translating to Hong Kong's more internationally focused investor base. What's driving this demand? Investors are wagering on Beijing's aggressive push for technological self-sufficiency in AI chips, particularly as Nvidia and other international leaders face escalating restrictions on what they can sell to Chinese companies.

But before anyone gets too carried away, it's worth taking a hard look at the risks. These aren't just minor speed bumps. U.S. sanctions pose serious challenges, and there's a massive technology gap that will limit these upstarts – most less than a decade old – in their ability to actually capture meaningful market share.

First, though, let's examine Iluvatar itself. The company is fairly typical of this cohort of AI chipmakers: big ambitions backed by relatively modest actual experience and sales.

Founded in 2015 by Li Yunpeng, a former R&D director at U.S. database giant Oracle, Iluvatar features a management team that includes Zheng Jinshan, previously a researcher at leading chipmaker AMD. This pattern of leadership teams stacked with executives who cut their teeth at major U.S. tech firms is common across Chinese AI chip startups. MetaX was founded by AMD veterans, while Moore Threads was established by a former Nvidia executive.

Like its peers, Iluvatar designs GPU products for AI workloads, covering both chips for training new AI models and inference chips used for deploying those models. And like others in the sector, it operates as a "fabless" company – outsourcing the actual chip manufacturing to third-party foundries while concentrating its resources on chip design and marketing.

Small but Growing Fast

The company's listing document reveals Iluvatar remains quite small in terms of actual sales, though growth has been rapid. Revenue reached 539.5 million yuan ($76.6 million) in 2024, nearly double the 289 million yuan recorded in 2023. In the first half of this year, revenue jumped another 64% year-on-year to 324 million yuan.

That growth rate looks impressive on paper. But the absolute numbers tell a different story. In terms of physical chips shipped, Iluvatar delivered just 52,000 units as of June. To put that in perspective, Nvidia moved nearly 2 million chips in China in 2024 alone, according to IDC.

Most of Iluvatar's Chinese rivals are similarly small players on the global stage. MetaX posted revenue of 743 million yuan in 2024, while Moore Threads recorded an even smaller 438 million yuan, and Biren came in at just 337 million yuan.

The Manufacturing Problem

The entire group faces a series of formidable obstacles, starting with limited access to advanced chip manufacturing technology. U.S. sanctions implemented in late 2024 effectively cut off Chinese AI chip companies from working with contract chip foundry TSMC, which dominates the global market for cutting-edge chip production.

Without access to TSMC, many companies have pivoted their production back to Mainland China, turning to domestic foundries like industry leader SMIC. But that solution creates its own significant problems. First, U.S. sanctions have capped SMIC's capabilities at around 7 nanometer technology – several generations behind TSMC, which has already begun producing 2 nanometer chips. This means companies like Iluvatar will lack the ability to manufacture upgraded products even as their design capabilities improve and potentially catch up with U.S. peers.

Making matters worse, SMIC has limited capacity to produce 7 nanometer chips due to its inability to purchase additional advanced manufacturing equipment. This forces Chinese chipmakers into fierce competition for the foundry's scarce manufacturing slots. Those slots typically go to larger, more established players like Huawei, leaving smaller firms struggling for access and often forced to seek alternatives elsewhere.

Losses Mounting

Given their relatively tiny revenue base combined with the enormous costs of designing and producing chips, it's hardly surprising that Iluvatar and its peers have yet to turn profits. In the first half of this year, Iluvatar posted a net loss of 609 million yuan – nearly double its revenue for the period.

Still, the potential upside for investors betting on Chinese GPU stocks is undeniably compelling. Chinese demand for AI chips is massive and expanding rapidly. Iluvatar cites third-party research in its prospectus forecasting the market will reach 898.1 billion yuan by 2029, quadruple the 217.5 billion yuan in 2024.

More importantly for domestic players, locally made general purpose GPU products are expected to capture over 50% of that market by 2029, up from 17.4% last year and just 8.3% in 2022. Beijing will almost certainly continue supporting domestic GPU makers through various channels, including direct financial subsidies and policy measures that effectively carve out protected segments of the market.

A Crowded Field

However, as investors contemplate the massive potential upside, they should also recognize the intensely fierce competition building in this market. Beyond the names already mentioned, Iluvatar and its peers face more formidable rivals in companies like Huawei, along with mid-tier players such as Cambricon (688256.SH) and Hygon (688041.SH).

These larger competitors enjoy multiple advantages. They command priority access to SMIC's limited manufacturing capacity. They lead in technology and product development. And they possess far deeper financial resources to weather the inevitable storms ahead.

There are signs of a chip bubble building here, one that seems destined to burst within the next five to 10 years. But for the moment, that's almost beside the point. Right now, shares of all the new names like Iluvatar seem likely to perform well initially, snapped up eagerly by investors hunting for substantial short-term gains. Whether those gains prove sustainable is another question entirely.