The recent surge in stock prices of certain technology companies has sparked a heated discussion among investors, especially around the topic of bubbles in the marketOne particular case that has caught everyone's attention is that of Cambrian, a company that appears to be experiencing a significant disconnect between its financial performance and its stock valuationDespite a revenue decline of 2.7% in 2023, Cambrian's stock skyrocketed by an astonishing 137%. In 2024, the trend continued; while revenues showed a notable growth of 27%, the stock price soared a staggering 388%, making it the highest-gaining stock on the A-share market.

As of early 2025, Cambrian's stock surged another 10%, reaching an all-time high of 718 yuan, establishing itself as the second-highest stock on the A-share market, just behind Kweichow MoutaiThe company boasts a market capitalization of 300 billion yuan, placing it third among semiconductor companies in terms of market value, following SMIC and Haiguang

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Given the momentum, it is not beyond reason to speculate that it could soon ascend to the industry's top position.

However, the question arises: what about Cambrian's actual business performance? In 2023, the company reported revenues of only 710 million yuan, alongside a staggering net loss of 850 million yuanThe situation did not improve in the first three quarters of 2024, with revenues merely hitting 186 million yuan while the net loss ballooned to 724 million yuanA market capitalization of 300 billion yuan alongside revenues of only 186 million yuan translates into an astronomical price-to-sales ratio of over 1,600. Such a valuation sparks criticism and raises eyebrows among investors and analysts alikeIs this valuation justified, or does it suggest an impending bubble?

Forty-five percent of Cambrian's total revenue came in the fourth quarter of 2023 alone

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Making assumptions based on the ongoing growth trends and estimating a conservative full-year projection of around 900 million yuan for 2024, the resulting price-to-sales ratio still stands at a staggering 333 timesEssentially, this means that for every 1 yuan of sales, Cambrian's market cap is valued at 333 yuan—an extraordinarily rare situation in any market globallyAs a point of contrast, Cambrian has seen a steady decline in its number of shareholders, dropping from 33,200 at the end of 2023 to about 26,500 by September 2024—an approximately 20% reduction.

What’s particularly interesting is that Cambrian is no longer a stock dominated by retail investorsWith a price tag reaching hundreds of yuan, acquiring a single unit now requires an investment upwards of 70,000 yuanIt's a known fact that nearly 95% of A-share investors do not hold accounts with more than 50,000 yuan

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Recent data indicates that institutional investors have largely taken over Cambrian’s stockThe number of institutional investors grew from 68 in the third quarter of 2023 to 743 by mid-2024, with a notable presence still, as evidenced by 306 institutions reported in the quarterly financials, and their collective shareholding reached a striking 194 million shares, which is close to 50% of the total shares outstanding.

Many of these major stakeholders are actively increasing their positionsFor instance, Huaxia's SSE STAR 50 Component ETF reported holdings of 16.14 million shares, having increased their positions by 291,600 shares, representing approximately 3.87% of the publicly available sharesE-Fund’s SSE STAR 50 ETF, another significant player, added nearly 2 million shares in the same period.

If we adhere to traditional valuation metrics, Cambrian's market appears bloated with excess hype driving an inflated price-to-sales ratio above 300. Comparisons with the larger A-share market showcase how rare such multiples are, indicating a potential bubble situation

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For context, the stock with the highest gain during this market cycle was AiRong Software, which reached a height of merely 37 times its price-to-sales ratio at peak performance, showcasing how Cambrian eclipses other strong performers.

Interestingly, a notable distinction arises between Cambrian and other stocks that have been propelled by speculative trading from various investorsCambrian, instead, sees institutional investors taking the lead, which raises questions about strategic insights guiding their decisionsThese institutional investors are often led by highly educated fund managers from prestigious universities, necessitating a look into their reasoning behind favoring Cambrian stocksAre they seduced by the notion of a technological revolution, or do they foresee gaps that could be capitalized upon?

The current climate of the A-share market may not be particularly favorable; however, Cambrian’s stock managed to leap by 10% recently

This uptick may be partially attributed to geopolitical factors, such as the U.SDepartment of Defense’s recent blacklisting of over a hundred companiesThe U.Sis resolutely committed to applying restrictions and sanctions on China in high-tech sectors, especially in semiconductors, as it aggressively seeks to curtail competition.

Given China’s status as the largest industrial nation and the global leader in electronic product manufacturing, the stakes within the semiconductor market are substantialChina’s semiconductor imports are valued in the trillions of yuan, and any disruption in that industry could reverberate throughout its broader manufacturing economy, which is also worth numerous trillionsThe strategic implication of targeting China's chip industry plays a crucial role in the larger context of U.S.-China relationsIn the AI chip development arena, firms like NVIDIA have emerged with phenomenal growth; NVIDIA’s revenue may surpass USD 140 billion in 2024, with net profits exceeding USD 80 billion, solidifying its status as the most profitable company on the U.S

stock market with a market cap peaking at a jaw-dropping USD 3.7 trillion.

This landscape showcases the significant market potential of AI chips, and Cambrian, often heralded as the first public AI chip company in the A-share market, finds itself juxtaposed against NVIDIA’s meteoric valuationThe proposition that Cambrian could reach a market cap of 300 billion yuan doesn’t seem excessive when framed alongside NVIDIA's positioningFrom this perspective, the question of whether a bubble exists challenges conventional financial logic.

On some occasions, the lines between genius and madness can blur, creating an environment where speculative bubbles can emergeFor stocks like AiRong Software, the signs of a bubble are palpableCambrian, however, presents a more enigmatic case; the nuances of its technological prowess and sustainable business model remain obscured from the public eye

Information is scant, and investors are left wondering about the company's potential as they sift through opaque financial disclosures.

When we confront ambiguity, it’s wise to revert to common senseDeveloping groundbreaking technology demands substantial investments in human capital and advanced equipment, which can lead to enormous financial commitmentsHistorical evidence suggests that remarkable breakthroughs in scientific research typically require vast amounts of funding, as seen in many established firmsYet, Cambrian's path remains less transparentThe recent research and development expenditure of Cambrian is telling; in 2022, it struck a peak of 1.52 billion yuan, which fell to 1.12 billion yuan in 2023, and in the third quarter of 2024, it was reported at 660 million, showing a year-on-year decline of 8%. From 2017 to the third quarter of 2024, Cambrian’s cumulative R&D expenditures reached a staggering 6 billion yuan

For those in the semiconductor sector, one must ask – how does this level of investment stack up?

Giving credence to the development of China's chip industry, including the designs that have emerged from firms like HiSilicon, leaves lingering questions about whether Cambrian will emerge as the preeminent player in AI chip designCurrently sitting at a market cap of 300 billion yuan, one can only surmise that achieving even a price-to-earnings ratio of 100 would necessitate 30 billion in revenue to justify the valuationIf we consider a more conservative 20% net profitability, revenues would need to hit 150 billion to remain viable in the long term.

So, what exactly is Cambrian? A bubble waiting to burst, or is it an institutional gamble on future AI developments? Regardless of the underlying premises, the realities of Cambrian's stock dynamics have seemingly drifted far away from where ordinary retail investors can influence its trajectory