Eyeing This Chinese Semiconductor Play After $10 Billion Prediction
As the stock market turns to a "sea of red," this name could benefit from China's response to U.S. tariffs and restrictions.
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It is a sea of red on Monday morning as market participants continue to deal with economic uncertainty.
Concern about a potential recession is building, which is good for safe-have bonds as well as some defensive stocks, but it is creating misery for small-caps and growth names.
Breadth is more than two-to-one negative, and the Magnificent Seven MAGS is leading to the downside with a loss of 3.8%, which takes it under its 200-day simple moving average for the first time since its inception in April 2023.
There are a few pockets of safety in dividend names like Altria Group MO and Verizon VZ, as well as in some drug names like Johnson & Johnson JNJ, but not much else.
My game plan is to keep refining my shopping list and track stocks that I believe are good values but are breaking down due to stock market conditions. These names should be the first to come back when the pressure relents, but there is no way to know how long this pressure will last.
One of the top names on my list is ACM Research ACMR, which is a way to gain exposure to Chinese semiconductors. China is working hard to develop a domestic semiconductor industry to shelter itself from U.S. tariffs and restrictions.
ACM Research, Inc. is a semiconductor equipment manufacturer founded in 1998 in Silicon Valley. While ACMR is domiciled in the U.S., its main operations are in Shanghai. ACMR's main asset is its subsidiary that trades on the Shanghai market, making this a Chinese play.
The company specializes in developing and manufacturing wet processing technology and products for the semiconductor industry. Their main focus areas include wet cleaning equipment, electroplating technology and stress-free polishing
Kerrisdale Capital released a very bullish report on ACM Research on January 30, 2025. The report highlights several key points:
- Market Position: ACM Research is positioned as a leading supplier of wafer cleaning tools in China, playing a crucial role in the country's push to expand its domestic semiconductor manufacturing.
- Industry Growth: The company's revenue has grown tenfold over the past six years, driven by China's response to U.S. export restrictions on semiconductor technology.
- Strategic Importance: ACM Research's strategic value increases with each new U.S. law that further restricts China's access to imported semiconductor equipment.
The report points out a significant undervaluation of ACM Research on NASDAQ compared to its Shanghai-listed subsidiary. The market cap of ACMR on the U.S. exchange is $1.7 billion, but the subsidiary on the Shanghai exchange has a market cap of around $6.7 billion.
Kerrisdale predicts that ACM Research's market capitalization could potentially reach $10 billion. However there is nothing that currently indicates that this huge disparity in value will be unlocked any time soon. On the other hand, it does provide good valuation support.
Technically, the stock has held up well recently despite the weak action in the market and in semiconductors. ACMR is a way to play increased U.S. restrictions on Chinese semiconductors. The more the U.S. restricts China, the more business it drives to ACMR. The chart is reflecting this safe haven status.
At the time of publication, DePorre was long ACMR, MO, VZ and JNJ.
