Chinese chipmaker ChangXin Memory Technologies, or CXMT, became the country's most valuable company almost overnight. The company is China's largest domestic producer of DRAM, the dynamic random-access memory used in everything from smartphones to data center servers — a market long dominated by Samsung, SK Hynix, and Micron.

CXMT's shares surged more than 500% in its Shanghai debut last Monday (July 27) and continued rallying through the week, rising 8.95% on Friday to close at 57.60 yuan ($8.50). By the end of the week, its market capitalization had reached 3.54 trillion yuan ($523 billion), overtaking the previous leader, Industrial and Commercial Bank of China.

The sharp rise has split experts over whether CXMT's stock performance reflects a short-lived boost driven by AI-related memory shortages or a more durable change in global AI supply chains that is bringing Chinese chipmakers into sharper focus.

“China is clearly becoming a more important memory chip player, but this is happening in a market distorted by AI demand, supply shortages and state-backed industrial policy,” said Barbora Valockova, a research fellow at Singapore's Lee Kuan Yew School of Public Policy. “It does not yet mean China is broadly catching up to the leaders across the full chip stack.”

Valockova said shortages are pushing companies to consider Chinese memory supplies, but any adoption is likely to remain selective and politically contentious, particularly in the United States.

On July 30, a group of U.S. lawmakers led by Indiana Republican Jim Banks and New York Democrat Chuck Schumer sent a letter to Apple CEO Tim Cook urging the company to avoid buying chips from “blacklisted” Chinese semiconductor suppliers such as CXMT and Yangtze Memory Technologies Co., or YMTC.

“This short-sighted move would be a mistake, and it would ensure the world's most valuable consumer electronics company grows dependent on critical supplies from a firm the U.S. government has formally designated as a Chinese military company,” the senators wrote, noting that the two Chinese chipmakers were on an updated Pentagon list of Chinese entities believed to be supporting Beijing's military.

Apple had previously been in negotiations to buy chips from both firms as it navigates a global memory supply shortage that has sent product prices higher. “We're seeing some very significant constraints currently, with limited flexibility in the supply chain,” Cook said during an earnings call last Thursday (July 30). “We're in what I would characterize as a 100-year flood on the memory pricing, with exponential increases in memory prices.”

The shortage has been intensified by surging demand for high-bandwidth memory, or HBM, a specialized type of DRAM stacked vertically to handle the massive data workloads of AI accelerators such as Nvidia's GPUs. SK Hynix currently dominates the HBM market, while CXMT has yet to establish itself as a meaningful supplier in that segment.

Other analysts said the shortage may lift demand for Chinese memory chips, but most global buyers are still likely to use CXMT only as a secondary source. Kong Tuan Yuen, a research fellow at the East Asian Institute at the National University of Singapore (NUS), said companies will continue to diversify supply chains and rely on suppliers in different geographic regions to reduce geopolitical risk.

Most firms will likely continue to use SK Hynix, Micron or Samsung as their primary suppliers, in part because CXMT still faces higher manufacturing costs, according to Rolf Bulk, head of semiconductor and infrastructure equity research at Futurum, who spoke to CNBC.

“CXMT is still two to three generations behind SK Hynix, Samsung, and Micron when it comes to the performance of their chips. So for every chip they produce, they have to spend 20% to 30% more on a cost per bit basis,” Bulk said.

Global chipmaker stocks tumble

Although Chinese chipmakers remain several generations behind leading global peers, the broader technology market was shaken by recent advances in China's AI sector, including CXMT's blockbuster debut and Moonshot's Kimi K3 release.

Nvidia shares fell 5% on Monday, while South Korea's SK Hynix and Samsung each dropped more than 13%. Semiconductor stocks later recovered by Friday, after strong earnings from Microsoft and Amazon revived optimism around AI spending.

Chen Gang, deputy director and senior research fellow at the NUS East Asian Institute, said he expects the momentum to translate into longer-term gains for Chinese chipmakers.

“We should not underestimate the pace at which Chinese companies can catch up to top global manufacturers,” Chen said. “Companies like CXMT and YMTC can leverage China's massive capital market and governmental support to expand their scales of production and research at much faster speeds than their foreign peers.”

Last Monday, The Information reported that an unnamed Chinese company had begun manufacturing an immersion deep ultraviolet lithography, or DUV, machine. Such machines etch circuit patterns onto silicon wafers and are a critical part of semiconductor production. They are primarily made by Dutch manufacturer ASML.

China has long sought to produce a lithography machine competitive with non-Chinese offerings as part of a broader effort to build its semiconductor industry. That drive has intensified in recent years in response to U.S. export controls, first imposed in October 2022, that restrict the sale of advanced chips and chipmaking equipment to China.

“The combination of government-led AI investment, mandates for local tech companies to tap domestic memory suppliers and rising demand from foreign firms like Apple will create a self-reinforcing cycle helping Chinese chip companies to move up the semiconductor value chain,” Kong said, while adding that the negative effect of geopolitics and U.S.-China relations will “always be a drag.”

Investors may soon get another opportunity to bet on China's semiconductor sector. Yangtze Memory Technologies Corporation, or YMTC, is now in the pre-IPO process for a listing on the Shanghai stock exchange. Unlike CXMT, which focuses on DRAM, YMTC is China's leading producer of NAND flash memory — the storage chips used in smartphones, solid-state drives, and data centers — meaning a successful listing would give investors exposure to both major segments of the global memory market through Chinese firms.

This story was originally featured on Fortune.com