In recent developments in the A-share market, starting from September 24, a remarkable trend has emerged with significant gainsOne of the standout performers has been the Science and Technology Innovation Board, especially the company Cambrian, which has witnessed a price surge that has led to its stock reaching an all-time high, boasting a market capitalization exceeding 140 billion yuan.

Since its inception four years ago, Cambrian's stock performance has followed a tumultuous path, mirroring the broader declines of the Science and Technology Innovation Board, and raising considerable doubts about its financial healthToday, positioned at historical highs, Cambrian finds itself at a pivotal moment where it must validate its value through tangible performance.

The current surge in Cambrian's stock began back in late 2022, marking its upward trajectory ahead of most A-shares and the broader marketAt the time, Cambrian's stock had plummeted more than 80% from its peak on the IPO day, raising concerns that it was on track to become the next China Petroleum-like example of a catastrophic decline.

Cambrian's rescue came unexpectedly with ChatGPT's rise and a robust performance from NvidiaThis incited an intensely competitive atmosphere within China around AI models and the shift towards domestic manufacturing, which accelerated the demand for local computing power and AI chipsCambrian, seizing this momentum, witnessed a remarkable uptick in its stock price.

In 2023 alone, Cambrian's share price skyrocketed by 535%, making it the top performer among nearly 700 AI-related stocks in the A-share marketIn 2024, Cambrian remained a key player with a further 157% increase in stock value, solidifying its reputation as one of the most successful AI stocks.

However, Cambrian’s explosive growth may raise eyebrows among skeptics

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Unlike companies engaged in upstream components like optical modules, PCBs, and others that are enjoying substantial profits, Cambrian, plowed firmly in the middle of the industry chain, lacks the earnings to support such a surgeIn its eight years of existence, every one of Cambrian's annual financial reports has shown losses, tallying losses over 5 billion yuan, and just in the first half of this year, the company recorded a loss of 530 million yuan.

While early-stage tech companies like Cambrian often encounter challenges achieving profitability, the declining research investment coupled with the plummeting revenue raises substantial concernsIn 2023, Cambrian reported revenues of 709 million yuan, a year-on-year decrease of 2.7%. Notably, R&D expenses, a crucial indicator for tech companies, also saw a significant downturn to 1.118 billion yuan, marking a 26.63% decrease—the first drop since its establishment.

The picture worsened in the first half of the year, where revenues plummeted again to 64.76 million yuan, a staggering 43% drop compared to the previous year, and R&D expenses, which amounted to 447 million yuan, decreased by 7.27%. With the divergence between stock prices and company performance becoming increasingly apparent, investors have begun to pull back, with some original shareholders opting to cash out at these elevated levels.

For instance, in the third-quarter report of 2022, iFlytek, once a major shareholder owning 1.17%, exited the top ten circulating shareholdersSimilar actions were seen with Alibaba Entrepreneurs Fund, which also fell out of the top shareholdersAs of October 2023, key early investors such as State Investment and Jiangsu Zhaoyin have drastically reduced their holdings, cashing out over 4.1 billion yuan.

By contrast, it seems that secondary market investors are exhibiting more patience

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Even after experiencing an impressive rally lasting over a year, Cambrian’s investor base has expandedPerhaps these shareholders hold strong faith in Cambrian’s ability to navigate its current challenges, viewing it as a top contender in the AI race and one of the leading figures in the domestic replacement competition commonly discussed in business circles.

The recent skyrocketing stock prices can be misleading, howeverCambrian, although youthful at just eight years old, is a company rich in legacy, closely following the AI revolution and equipped with a competitive edge through focused investmentsThis has become the cornerstone of Cambrian's resurgence in the stock market.

Historically, Cambrian was established in 2016, coinciding with a critical breakthrough in AIIn March of that year, Google’s AlphaGo, a robot that outmatched Go master Lee Sedol, was deemed a turning point in AI advancementsThat same year, a team from the Institute of Computing Technology at the Chinese Academy of Sciences unveiled the first "deep learning" chip, aptly named "Cambrian", signifying a groundbreaking moment in the sector.

Fast forward, and in a matter of years, this fledgling company evolved into a beacon in China's AI chip market, thanks to the leadership of Tian Shi Chen and a dedicated team hailing from academiaIts early partnership with Huawei, forming the backbone of Huawei's AI processors, propelled Cambrian towards significant early successFrom 2017 to 2019, the revenue from Cambrian's IP licensing to Huawei totaled around 1.142 billion yuan, shaping a major source of its income.

By 2020, Cambrian made its debut on the Science and Technology Innovation Board at a time when overall market conditions for blue-chip companies were favorableInvigorated by its reputation as "the first AI chip stock", it witnessed a staggering threefold increase on its listing day, leading to a market value that broke through the 100 billion yuan threshold

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