In the ebb and flow of the financial world, the emergence of a new market darling often comes with an air of intrigue, uncertainty, and debateThe latest phenomenon has been the swift rise of Cambrian (688256.SH), which has sparked confusion among many investorsMarking a significant event on October 18, Cambrian's 20M stock price hit a ceiling, reaching an all-time high, only to see a minor pullback the following trading day, before surging again to a 3.33% increase, further establishing its new peakWith a market capitalization that has exceeded 180 billion yuan in just over two weeks, Cambrian has seemingly doubled in value, setting the stage for speculations and discussions about its viability and future.

Despite the impressive spikes in stock, a lingering question remains: What is it that makes Cambrian seem so perplexing, especially considering its financial history? As the self-proclaimed "AI chip number one stock," Cambrian has been embroiled in a perennial cycle of losses since its public listing in 2020, without turning a profit

Reports indicate that in the first half of 2024, Cambrian's revenue plummeted to merely 64.77 million yuan—a staggering decline of over 43% year-on-year—culminating in losses of over 500 million yuan, and bringing their total losses since 2017 to an eye-watering 5.5 billion yuan.

Yet, despite the sobering figures, fervent proponents of Cambrian continue to assert their belief in the company's future, likening its potential to that of the tech juggernaut NvidiaA notable comment from a netizen highlighted the ironic twist that Nvidia's massive growth within AI stemmed from accidental avenues; their graphics cards were fundamentally designed for gaming, not AI applicationsThis sentiment has fueled a narrative that suggests Cambrian is poised to fill the void for specialized computing power chips tailored for AI—a role that it has already declared as its own

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The rise of Cambrian is characterized not just by its stock prices, but also by an ambitious vision its investors cling to, one that resonates significantly in China’s technological landscape.

Further fueling the optimism surrounding Cambrian are projections from AMD and TSMC, which estimate the GPU market to reach an astounding $400 billion by 2027. Should the Chinese market capture just 10% of that, it translates to a whopping $40 billionCambrian, being a pioneer in China’s AI chip space, could then potentially secure a 5% market share, amounting to a cool $2 billionThe logic presented by some observers even suggests that if Cambrian were to scale to such heights, its current evaluations may appear undervalued compared to their American counterpart Nvidia, raising questions about its market pricing.

However, these speculative figures are fraught with challenges

The climb towards becoming China’s equivalent of Nvidia is not without its hurdlesKey questions linger, primarily concerning whether Cambrian can ascend technologically to match Nvidia’s illustrious prowess, whether it can garner enough financial support to reach that status, and what the market landscape might look like for AI chips when—or if—Cambrian ever realizes its ambitionsEach of these questions presents a complex tapestry of risk and potential.

Delving into the technical aspects, we witness Cambrian striving to close the gap on Nvidia, though the road is undeniably steepIn recent years, as global sanctions limited the exportation of high-end products like Nvidia's A100 to China, Cambrian unveiled their own products: the "Siyuan" lineThe initial version offered only 40% of the A100’s inference capabilities and 20% of its training performance

Fast forward to 2023, and Cambrian released its next-generation Siyuan 590 chip, which aims to directly rival the A100. Internal tests suggested its capabilities mirrored a significant portion of Nvidia's technology, offering performance surpassing 80% of the A100 in specific models, while lagging behind in others.

Apart from the technical disadvantages, Cambrian must also navigate the treacherous waters of supply chain vulnerabilitiesFollowing the US government's inclusion of Cambrian on their Entity List in 2022, the ripple effects are keenly felt within their supply chain for wafer foundries, chip IPs, and EDA toolsThe company faces the dual threat of limited resources and heightened scrutiny, challenging their operational continuity.

Transitioning to the financial narrative, investors are left speculating how long Cambrian can sustain itself in this precarious environment

The uncertainty surrounding their capital is arguably more pressingReports indicate that Cambrian is not only strapped for cash but has also been compelled to scale back on research and development investmentsDespite listing in 2020 and garnering only 2.582 billion yuan in capital—penned as a minuscule fraction compared to contemporaneous tech giants—Cambrian’s activity in the market has resulted in diminished fundingAfter a series of regulatory pushbacks, their additional public offerings have attracted skepticism, resulting in shrinking funds.

By mid-2024, their cash reserves reportedly dwindled to 1.383 billion yuan, a worrisome 65% decrease since the conclusion of 2023. Even more alarming is the sharp decline in R&D spending—down by over 26% in 2023 alone, marking the first annual drop in their historyAs issues compound, the prospects for sustained innovation diminish, creating a vicious cycle where funding begets further funding, and diminished capabilities lead to lowered expectations.

For Cambrian's investors, a silver lining emerges from the volatility—higher stock prices may translate into greater fundraising potential in the future

Thus, as share values soar, some argue the company stands a better chance of weathering its financial stormsHowever, this is predicated upon an environment where stock market performance is often fueled more by emotion than by rational analysis, leaving many to wonder what the eventual fallout might resemble.

Finally, with many eyes keenly watching Cambrian’s trajectory, the question of market saturation looms ominouslyShould Cambrian successfully evolve into the Chinese equivalent of Nvidia, what then remains of AI chip scarcity? As Cambrian’s position strengthens, it could imply monumental advancements within China's broader tech ecosystem, fostering an environment where other contenders emerge to challenge the status quo.

There’s a potential future scenario, mirroring the competitive landscape of the electric vehicle market in China, where intense competition can lead to price wars