In a surprising turn of events, a company known for its losses over the years has made its way into the prestigious SSE 50 Index, capturing the attention of investors from various sectorsThis inclusion marks a noteworthy moment, as the company, Cambrian, struggles with ongoing financial deficits while reinforcing the influence of margin trading on its stock performanceThis situation invites scrutiny and contrast as Cambrian steps into a realm traditionally reserved for well-performing larger corporations.
On November 29th, the Shanghai Stock Exchange announced its decision to adjust the SSE 50 Index to include Cambrian, which boasts a market capitalization of 230 billion yuanThe effective date for this inclusion is set for December 13thThe market reacted swiftly, triggered by whispers regarding the company's dismal performance history, primarily characterized by its persistent financial losses
Since going public, Cambrian has been plagued by commercialization challenges, with research and development expenses consistently outpacing revenue, culminating in more than 4 billion yuan in losses.
However, in stark contrast to its losses, Cambrian's share price surged significantly this year, driven by a growing market enthusiasm for technology stocksThis surge in valuation has rendered Cambrian eligible for a coveted spot in the SSE 50 Index, often referred to as the "super large-cap stock" index, a realm where financial strength and stability reign.
Interestingly, Cambrian's entry into the SSE 50 has drawn parallels with past instances, particularly reminiscent of the last-minute market enthusiasm surrounding Jinlongyu in late 2020. The intricate dynamics of leveraged trading and the rise of exchange-traded funds (ETFs) appear to be a critical driving force behind Cambrian's surging stock
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These factors were crucial in elevating the company's recognition, bestowing it a treatment befitting a flourishing tech giant.
In their announcement, the Shanghai Stock Exchange elaborated on the comprehensive adjustments made to various indices, reinforcing the criteria Cambrian successfully met to secure its position in the SSE 50. It had previously qualified as part of the SSE 180 Index before securing a spot among the top 50 entities within the exchange, thus meeting the necessary prerequisites.
From November 29th, 2023, to the current date, Cambrian’s stock has skyrocketed nearly 290%. During this period, the company recorded an average daily market capitalization of approximately 93 billion yuan alongside a noteworthy trading volumeThese vigorous metrics positioned Cambrian successfully within the top ranks of the SSE 180 Index, paving the way for its SSE 50 accession.
The question arises about the type of capital that fueled Cambrian’s impressive hike
One apparent catalyst is the active participation of leveraged funds keen on increasing their stakes in the firm, as noted in a report by Wind, which detailed the escalation of margin loans in recent monthsOn September 25th, the balance of Cambrian's margin financing was a mere 1 billion yuanA mere 42 trading days later, this amount grew exponentially to a staggering 3.64 billion yuan.
Furthermore, the expansion and growth of index funds acted as significant support for Cambrian’s rallyPrior to Cambrian's induction into the SSE 50, the company was already classified as a leading entity in the ChiNext 50 and the National Chip Index, leading it to anticipate positive demand from various linked ETFs.
By the end of the third quarter, notable shareholders like Huaxia and E Fund were recorded among Cambrian’s top stakeholders, acutely tying them to the emerging ETFs focused on ChiNext and national semiconductor sectors
Given the substantial growth in fund sizes, both ChiNext and SSE 300 thematic ETFs have attracted considerable investor attention, significantly boosting asset allocations.
Despite the rampant ETF growth, a stark contrast lies in Cambrian's performance metricsClosing at 562 yuan on December 2nd, the firm's market capitalization reached approximately 234.6 billion yuan, corresponding to a staggering price-to-earnings ratio of 45.66 times and a price-to-sale ratio of over 313.28 timesThis valuation is particularly perplexing given that Cambrian's third-quarter report indicated a continued loss of 862.5 million yuan, compounding losses since its IPO to more than 4 billion yuan.
Investors may wonder how a company with such poor performance can maintain a high market capitalizationThe crux of Cambrian's dilemma appears to lie within its exorbitant research and development expenses
From 2020 to the present, the company has consistently allocated vast amounts toward R&D, while its total revenues remain strikingly low—amounting to around 4.59 billion, 7.21 billion, 7.29 billion, and 7.09 billion yuan from 2020 to 2023, leading many to question viability.
The company has struggled to find significant revenue streams, particularly following a major contract loss with HuaweiThis setback has further compounded its troubles, pushing Cambrian to pivot towards less reliable government contracts for revenue.
As the Chinese tech sector trends toward "self-controlled" innovations, Cambrian's ability to collaborate with significant clients remains uncertainNevertheless, the company's latest product, the SiYuan 590 chip, allegedly rivals industry-leading chips and might unlock expansive revenue opportunities if positioned properly in the market.
The impressive inflow of investment funds has not only changed Cambrian's operational landscape but has also vaulted the fortunes of its founder, Chen Tianshi
Originally a prodigious talent, Tianshi earned his degree at 16 from a prestigious Chinese university and later founded Cambrian in 2016 amid a rush of venture capital interest that would swiftly bolster its valuation.
Following a rapid ascent, Chen's valuation soared, affirming his status as a significant player in China's tech landscapeAs of now, his holding within Cambrian amounts to approximately 68 billion yuan, marking a remarkable rise from the initial dip following a public skepticismDespite fluctuating sentiments surrounding Cambrian, the firm's resurgence in popularity has seen it redefine its standing within the stock market, transitioning from an outcast to a market darling.
In conclusion, while Cambrian's future remains clouded with uncertainties, driven by its challenging commercial journey, the dynamic interplay of speculative trading, investor enthusiasm, and strategic positioning opens a multifaceted landscape for what lies ahead for this Chinese tech firm in the highly competitive AI chip arena.