China's GPU makers found scale as profit came from elsewhere

Chinese GPU makers crossed the commercial threshold in H1 2026, yet profitability remains uneven. Upstream EDA and IP vendors stand to gain from rising domestic demand, while midstream fabrication faces pressure from advanced node supply chain constraints. Regulatory risks persist, with U.S. export controls tightening, compelling firms to accelerate self-reliant ecosystems. In market dynamics, leading players may pursue M&A or expand into AI training/inference, while foreign competitors could enter via licensing or partnerships. Over the next 12 months, if domestic AI applications surge, demand will spike, but margins may compress due to cost inflation and capacity expansion. Long-term, the industry will evolve from 'functional' to 'high-performance', but risks include capital bubbles and over-reliance on specific technical paths.