Cambricon stock price surged: here’s why it may crash soon

Cambricon stock price has gone vertical this year and is now hovering at its all-time high. It jumped to a high of CNY 1,600, much higher than the year-to-date low of CNY 521.

Consequently, its market capitalization has jumped to CNY 664 billion, which is equivalent to over $92 billion. It had a market cap of below CNY 80 billion last year.

Why the Cambricon share price has soared 

Cambricon stock has surged because of the ongoing artificial intelligence tailwinds. This is notable since it is one of the top manufacturers of AI chips in the country. It also makes terminal intelligent processor smart chips and accelerator cards, and intelligent computing cluster systems. 

Donald Trump has helped to boost the Cambricon stock price by imposing export restrictions on NVIDIA, AMD, and other semiconductor companies. 

This, in turn, has pushed Beijing to push its local companies to invest more and build products that are competitive. As such, the country has not been very welcoming to NVIDIA’s H20 chips that are known to be less competitive. 

Beijing has been investigating these chips to see whether they have a backdoor that the US government can leverage. While NVIDIA has rejected the claim, the Trump administration has pushed it to do that so that it can track their locations. 

NVIDIA recently announced that it would pull H20 chips from the Chinese market and is now pressing the administration to allow it to sell more advanced chips there. The Trump administration will take a 15% cut from these profits. 

Cambricon, which is a state-owned firm, has use the trade tensions with the United States to gain market share in China by selling its cips to companies like Alibaba and Tencent. This is notable since China is the biggest market for these chips. 

Cambricon’s chips are less advanced than those that NVIDIA makes. However, the company is investing in R&D to bridge the gap. 

History shows that Chinese companies eventually catch up with their American rivals. A good example of this is in the electric vehicle industry, where companies like Byd and XPeng are making vehicles that are equally or even better than those made by Tesla and Rivian.

The Cambricon stock price rally is also being driven by retail investors, many who lack safer places to save their money now that the real estate market has collapsed. 

However, the risk is that the company has become highly overvalued, as it overtook Kweichow Moutai to become the most valued onshore company.

Cambricon stock price technical analysis 

Technical analysis shows that the Cambricon stock price has gone parabolic in the past few months. This surge has pushed it above the crucial resistance level at CNY 817, its highest level in March this year.

The risk, however, is that the stock has moved much higher than the crucial moving averages. For example, it is trading at CNY 1,600, while the 100-day moving average is at 749 and the 200-day EMA is at 638.

Therefore, there is a risk that the stock will crash because of a concept known as mean reversion, where it drops and moves back to the moving average.

The other risk is that the stock has become highly overbought, with the Relative Strength Index and the Stochastic Oscillator moving to extreme levels. As such, there is a risk that it may drop soon as investors start to take profits.

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