China Galaxy Securities: AI Drives VC and Diamond Heat Dissipation Demand, Domestic Substitution Still Has Vast Market Space

China Galaxy Securities released a research report stating that the domestic heat dissipation material industry has formed clusters in areas such as TIM, ceramic substrates, and liquid cooling materials, with significant potential for domestic substitution. Currently, VC heat spreaders and graphite films, due to their excellent thermal conductivity, have become the mainstream cooling solutions for AI smartphones. Diamond alloy materials are expected to be promoted for high-power AI chip cooling, thermoelectric cooling can achieve localized precise temperature control, and liquid metal possesses high thermal conductivity and a wide temperature range.

China Galaxy Securities’ main points are as follows:

Domestic heat dissipation materials are concentrated in TIM, ceramic substrates, and liquid cooling materials, with large room for domestic replacement.

The heat dissipation material industry chain consists of upstream raw materials, midstream component manufacturing, and downstream applications, forming a pattern of high barriers upstream, high value in the midstream, and strong demand-driven downstream. Upstream raw materials mainly include high-purity ceramic powders (AlN/BN/SiC/diamond), carbon-based materials (graphene/CNT/graphite), metal raw materials (copper/aluminum/copper alloys/tantalum), and liquid cooling media (fluorinated liquids, synthetic esters, water-based liquids). Midstream component manufacturing mainly involves thermal interface materials (TIM), heat dissipation structural parts, and core liquid cooling components. The midstream has the highest value and fierce competition. Downstream primarily involves terminal applications. The first tier of heat dissipation materials is mainly concentrated in Europe, America, and Japan, such as 3M, Henkel in Europe and America, and Shin-Etsu Chemical, Kyocera in Japan. The second tier includes companies like China Stone Technology, Feirongda, Zhongci Electronics, Sanhuan Group, and Tianyue Advanced, mainly focusing on TIM, ceramic substrates, and liquid cooling materials, with large room for domestic substitution.

VC heat spreaders and graphite films are the preferred solutions for AI smartphone cooling.

VC heat spreaders, with their phase-change thermal conductivity efficiency, are essential for high-performance models; graphite films are a basic solution with low cost and suitable for mid-range phones. Compared to traditional solid thermal conduction methods, VC heat spreaders can transfer heat more quickly to larger cooling areas such as the chassis and backplate, increasing cooling area by 5 to 8 times. According to Electronic Fever Network, the thermal conductivity of VC heat spreaders is about 0.2-50 KW/mK, heat pipes about 10-100 KW/mK, and liquid cooling cold plates about 1-5 KW/m*K. Listed companies in A-shares mainly engaged in VC heat spreaders include Suzhou Tianmai, Jingyan Technology, Jebon Technology (which acquired Sainuo Gaode to enter VC), and Shuobeide.

Diamond alloys are expected to be promoted for high-power AI chip cooling.

As the global semiconductor industry enters the 2nm process era, chip power density and heat generation are rising simultaneously. When thermal conductivity exceeds 500 W/m·K, diamond is an excellent heat sink material to replace traditional silicon-based cooling. CVD polycrystalline diamond is an ideal cooling solution for high computing power AI. Nvidia’s Vera Rubin architecture GPUs will fully adopt a new “diamond-copper composite cooling + 45°C direct liquid cooling” scheme. Diamond has a thermal conductivity of up to 2000-2200 W/(m·K), copper about 380-400 W/(m·K), and their combination creates an alloy with a thermal conductivity of about 950 W/(m·K). Over 90% of the global diamond single crystal production is from China, with Henan producing 80%. Companies like Zhongnan Diamond (a subsidiary of China North Industries Group), Yellow River Cyclone, Zhengzhou Huajing, and Liliang Diamond hold nearly 70% of the domestic market share. It is estimated that by 2028, the global diamond cooling market could reach 17.2-48.3 billion yuan, benefiting related companies.

Thermoelectric cooling can achieve localized precise temperature control, and liquid metals have high thermal conductivity and a broad temperature range.

The core advantages of thermoelectric cooling are no moving parts, precise temperature control, millisecond response, and bidirectional cooling/heating, rapidly penetrating scenes such as AI optical modules, medical devices, lasers, and automotive applications. Liquid metal cooling uses gallium-based, indium-based, or bismuth-based alloys as core media, with thermal conductivities of 15–73 W/(m·K) (5–10 times higher than traditional silicone grease) and broad temperature ranges, becoming key solutions for high-density cooling in AI servers, high-end consumer electronics, and new energy vehicles.

Risk warnings:

Risks of lower-than-expected demand and mass production of high-end chips; risks of accounts receivable collection falling short; risks that AI development may not meet expectations.