The past two years have witnessed the meteoric rise of Cambricon Technologies Corp, a Chinese semiconductor company that has captured the attention of both institutional investors and the general public. With its stock skyrocketing by several times, the company has been hailed as a leading player in the smart chip market. However, beneath this surface of financial exuberance lies a complex web of concerns regarding its astronomical valuation, which stands at over 300 billion yuan despite revenues that have yet to reach 1 billion yuan. The investment community has raised eyebrows at such disparities: how can a loss-incurring company justify its excessive market cap? The metrics of Price-to-Earnings, Price-to-Book, and Price-to-Sales seem inadequate for proper evaluation, leading some to jokingly suggest alternatives like Price-to-Dream and Price-to-Research in this baffling scenario.

As Cambricon's stock price continues to ascend, skepticism seems to abound, particularly regarding its financial performance. On January 15, 2025, in an attempt to quell these doubts, the company preemptively released its performance forecast for the year 2024. According to the announcement, the company expects a remarkable revenue growth of between 50.8% and 69.2%, amounting to revenues between 1.07 billion and 1.2 billion yuan. This surge is certainly encouraging, indicating a rapid expansion of business operations. However, what stands out even more is the announcement regarding profitability. For the first time in its history, Cambricon anticipated achieving quarterly profits in the fourth quarter of 2024, projecting net gains between 240 million and 328 million yuan — a figure that exceeded the symbolic 200 million yuan mark. This positive financial outlook appeared to rally investor sentiment, promising a rebuttal to long-standing allegations regarding its lack of profitability.

Yet, a closer inspection of the performance forecast reveals discrepancies that paint a more complicated picture. Cambricon indicated an adjusted net profit (excluding non-recurring items) loss of 765 million to 935 million yuan for 2024, which compared to a nine-month period ending in 2024, where the adjusted net loss was 862 million yuan. The polarizing nature of these numbers underscores a significant impact from non-operating gains and losses. During the fourth quarter, adjusted net profit figures exhibited a stark contrast — while the company projected a loss ranging from 7.3 million to a potential gain of 9.7 million yuan, the overall narrative of profitability becomes muddied when accounting for operational realities.

In a bid to shed light on these inconsistencies, Cambricon itself disclosed the considerable impact that non-operating gains might have on its net profits, estimating this effect between 369 million and 451 million yuan. These figures are primarily attributed to previously established bad debt provisions being reversed and government subsidies tied to the current period. By acknowledging these elements, the company clarifies the distinction between genuine operational profitability and accounting-level earnings.

The juxtaposition of accounting profits against the backdrop of ongoing loss from core operations presents a challenge for investor confidence. The implications were evident as after the announcement, the stock opened with a significant decline — dropping more than 3% at the opening bell, further plunging over 4% at one point during the day. However, the narrative shifted slightly by midday as trading saw some recovery, with the stock briefly advancing by over 1% — an indicator of fluctuating market sentiment regarding the announced figures.

As the first smart chip firm in China, Cambricon carries enormous expectations. It has also drawn a considerable amount of institutional support, with many viewing it as China's answer to NVIDIA. From a valuation standpoint, the only viable metric appears to be the Price-to-Research ratio, akin to NVIDIA's similar lofty numbers; there exists a compelling parallel in that both companies maintain valuations in the realm of several hundred times their research expenditures.

From an aspirational perspective, should Cambricon succeed in establishing itself as a leading force in China's smart chip landscape, the potential for boundless growth is evident. The parallels drawn to a Chinese NVIDIA inspire excitement and hope in the technology and investment communities alike. Yet, with sentiments anchored in rationality, one has to consider the glaring reality: Cambricon's stock has already surged past 700 yuan and even soared to an impressive high of 777.77 yuan. Investors familiar with the A-share market know too well that stocks hitting such symbolic pricing thresholds often signal a potential peak rather than a beginning. Speculative bubbles usually entail consequences—dips or corrections, and Cambricon might be on the precipice of such a scenario.

It becomes increasingly apparent that Cambricon's current valuation might be predicating excessive performance expectations, given its staggering 300 billion yuan market capitalization. Even when considering 100 times the expected valuation, a net profit of 30 billion yuan would be required to align with the current market cap, a feat that necessitates revenue exceeding 10 billion yuan, in spite of the company’s forecast of significant growth. While projecting a revenue increase of over 50%, its maximum achievable revenue still hovers around 1.2 billion yuan, indicating an urgent need for triple-digit growth in the long term. This presents a daunting challenge not only for Cambricon but also for investors intricately woven into its ambitious narrative.