Chinese chipmakers are trading at eye-watering valuations that are raising red flags among investors. Semiconductor Manufacturing International Corp. fetches about 128 times forward earnings for its mainland-listed shares, while Hua Hong Semiconductor Ltd. trades at a staggering 181 times. By comparison, both Intel Corp. and South Korea's Hanmi Semiconductor hover around the lower end of 90 times.

Valuation concerns are emerging as chip stocks rally, with potential bubble risks more pronounced across China's broader chip sector. Xiang Xiaotian, director at Shanghai Chengzhou Investment Management, noted that premiums are largely driven by localization expectations rather than strong earnings. Hua Hong's Q1 net income fell below estimates, and SMIC also reported a net income miss for the January-March period.

Beijing's push to localize the chip supply chain and achieve tech self-sufficiency is lifting sentiment, helping drive the STAR50 index to a record high this week amid an AI-led rally across Asian markets. However, signs of crowding are emerging: turnover topped 3 trillion yuan ($442 billion) for a seventh straight session and margin financing climbed to high levels. Investors will watch President Trump's visit to China, joined by Nvidia founder Jensen Huang, for potential chips-for-rare-earth deals.