The A-share market in China witnessed a remarkable surge in the stock price of Cambrian Technology, which emerged as the top performer for 2024. The company previously reached an impressive peak of 777.77 RMB per share on January 10, leading to a market capitalization that briefly topped 300 billion RMBHowever, following this record high, the stock experienced a notable retreat.

On January 16, Cambrian's share price dropped by 14.65%, dipping below the significant 600 RMB threshold to close at 594 RMB per share, signaling a clear trend of capital withdrawal from the stockThis decline raised eyebrows, especially in light of the company's recent earnings forecast for 2024, which suggested a potential turnaround with the fourth quarter expected to witness a profit for the first timeThis development was interpreted positively by market observers who are hopeful that Cambrian is moving towards fulfilling its profit expectations.

Despite these optimistic forecasts, industry analysts expressed skepticism about Cambrian's ability to maintain a 300 billion RMB valuation due to its currently weak earnings

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Interestingly, during the stock's price correction, the balance of margin financing—a crucial indicator of investor confidence—continued to rise, indicating that investors were still banking on Cambrian's recovery.

In terms of financial performance, Cambrian has shown consistent revenue growth since 2017, but has struggled with substantial net losses, primarily due to significant research and development expendituresThe preliminary earnings forecast for 2024 indicated expected revenue between 1.07 billion and 1.2 billion RMB, marking an impressive year-on-year growth of 50.83% to 69.16%. Simultaneously, the projected net loss for the company is expected to narrow, ranging between 400 million and 480 million RMB, a reduction of approximately 43% to 53.3% compared to the previous yearThis is a noteworthy change considering that in the first three quarters of the year, Cambrian reported a net loss of 720 million RMB, reflecting a reduced loss of 90 million RMB year-on-year.

The company attributed this performance enhancement to its proactive market expansion efforts and support for the practical implementation of artificial intelligence applications, generating a substantial increase in revenue compared to the same period last year

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Cambrian also hinted that non-recurring gains and losses would contribute significantly to its net profits, expected to fall between 369 million and 451 million RMB.

Despite remaining in the red in terms of net profit, analysts noted that the decreasing loss margin indicates Cambrian has made strides in cost control and expense managementFurthermore, the company achieved a significant milestone by projecting profitability in the fourth quarter of 2024 for the first time since its public listingThe expected revenue for this quarter was estimated to be between 885 million and 1.015 billion RMB, with a net profit approximation of 240 million to 328 million RMB.

This positive trend can be attributed partly to Cambrian's expanding market for its chip products, having previously stated its commitment to harnessing its AI chip technology to deepen ties with leading companies in internet applications and other cutting-edge fields

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Notably, data indicates that since the second quarter of 2024, Cambrian has observed a significant rise in both inventory levels and prepaid expenses, suggesting an increase in manufacturing and supply chain activity.

Between January and September 2024, the cash spent on fixed assets, intangible assets, and other long-term assets surged to 211 million RMB, representing an extraordinary increase of 246%. Additionally, by the end of the third quarter of last year, Cambrian’s inventory rose to 1.02 billion RMB, a significant rise from 130 million RMB and 240 million RMB in the previous quartersPrepaid expenses also experienced notable variations, reaching 850 million RMB by the end of the third quarter, up 55% month-on-month.

These fluctuations in key performance indicators have led many financial analysts to conclude that Cambrian's chip business is well on its way to substantial expansion

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The notable increase in inventory suggests that the company is either confidently preparing for an uptick in market demand or gearing up to launch new productsThe rise in prepaid expenses reflects a strategic move to secure critical raw materials and technical services in advance, ensuring a smooth production and research development process.

Analyst feedback suggests that since the beginning of 2024, Cambrian has successfully validated the LLM model's pre-training functionality and has ramped up the production of its smart chip products for natural language applications across the internet sector.

While Cambrian has managed to showcase improving performance, the company's stock market trajectory has also been a focal pointWith a staggering 387.55% increase in 2024 alone, Cambrian has captured the title of the year’s biggest winner in the A-share marketOn January 10, shares rose by over 9%, reaching the all-time high of 777.77 RMB before closing at 729.97 RMB, positioning it as the second most expensive stock in the A-share market after Kweichow Moutai, with a short-lived market cap exceeding 300 billion RMB.

This remarkable performance led many investors and market participants to affectionately label Cambrian as the "King of Cold" or "AI’s Top Dog." The company has also been included in several significant indices, reflecting its increasing importance and impact within the market

As commented by financial analysts, Cambrian’s inclusion in various indices underscores its significance in the technology space and demonstrates an emphasis on supporting innovation in emerging industries.

As of January 16, 2024, data from Wind revealed that Cambrian was included in 61 indices associated with fund products, totaling a staggering estimated passive equity holding size of 462.12 billion RMB across 956 linked products, with the overall size of linked products reaching 2.02 trillion RMBNotably, the largest portion of linked products corresponds to the CSI 300 Index, where Cambrian was recently integrated in December 2023, amounting to a linked product scale of 1.1 trillion RMB.

The expansion of index funds has drawn a significant influx of passive capital towards Cambrian, inadvertently attracting more investors to van entry into the stockBy January 10, 2024, Cambrian reported a significant margin financing balance of 4.079 billion RMB, indicative of increased speculative activity amidst rising prices.

However, despite this remarkable price appreciation, Cambrian has encountered the pressures of high valuation levels

Critics in the investment space have pointed out the stark contrast between Cambrian's inflated market valuation and its still modest earnings performance"The anticipated profit improvements have driven Cambrian's valuation to nearly 300 billion RMB, making it difficult to sustain such levels based solely on current earnings," an experienced investor in the field of AI noted.

Right after hitting the historic peak, Cambrian’s stock price entered a rapid descentOn January 10, it closed at 719 RMB per share after peaking at the aforementioned price, but the values began to oscillate downwards soon afterwardBy January 16, the stock had declined significantly, closing at 594 RMB as capital outflows became evidentInvestors expressed sentiments indicating that while those holding equity through the STAR 50 index had benefitted immensely from Cambrian's ascension, others felt the repercussions of its volatility.

Moreover, on January 13, the U.S

government announced new regulations on AI chip exports aimed at refining and tightening controls over advanced AI models and intricate integrated circuits across the globeThis development influenced a market-wide pullback of semiconductor stocks on January 16, exacerbating Cambrian's stock price decline.

As Cambrian looks ahead to 2024 and beyond, there are expectations of notable advancements as the company collaborates with leading clients in the fields of internet technology and large modelsAnalysts predict that the sales of Cambrian's AI chips to commercial clients will see a significant upliftTaking into account Cambrian’s position in the industry, competitive advantages, and future demand prospects, Guangfa Securities has set a price-to-sales ratio valuation of 85x for 2025, which corresponds to a target stock price of 713.98 RMBThis projected valuation is noticeably lower than Cambrian's historical peak of 777.77 RMB.

Investors should remain vigilant as the situation evolves