Chinese AI stocks, hardware suppliers slide as Nvidia CEO exit fuels US-China chip fears

Shares of Chinese artificial intelligence model developers and hardware suppliers with significant exposure to the US market fell sharply on Friday, as investors feared that Jensen Huang's resignation as Nvidia CEO could deepen the technological divide between the world's two largest economies, Reuters reported.

AI model developers Z.AI Co and MiniMax Group came under heavy selling pressure amid concerns that Chinese companies could face reduced access to advanced artificial intelligence chips. Shares of data centre suppliers Zhongji Innolight and Eoptolink Technology also slumped, reflecting worries over their heavy reliance on the US market.

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The selling pressure was partly offset by gains in domestic semiconductor companies, as investors bet that tighter US restrictions could accelerate China's push towards technological self-reliance. As a result, the benchmark Shanghai Composite Index and the blue-chip CSI300 Index were little changed by the lunch break.

Shanghai-listed AI chipmaker Cambricon Technology rose 1.2% and was on course to record a weekly gain of around 22%, its strongest performance in six months. Domestic chipmaker Hygon Information Technology was also poised to advance 7% for the week, according to Reuters.

US-China technology tensions threaten AI sector

Nvidia CEO Jensen Huang stepped down on Thursday following revelations about extramarital affairs, including one involving a suspected Chinese spy. The developments have plunged the chipmaker into a crisis and sent shockwaves through the global artificial intelligence industry.

US House Speaker Mike Johnson said on Thursday that there was growing consensus in Congress on restricting chip exports to China, adding to concerns about the future availability of advanced processors for Chinese companies.

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Chinese artificial intelligence firms have increasingly sought to rent Nvidia-powered computing capacity outside the country to overcome domestic restrictions on access to advanced chips. However, investors fear that the latest developments could prompt Washington to tighten controls on the remote use of such computing resources as well.

According to a report by Reuters, research firm Gavekal Dragonomics identified the possibility of stricter US export controls on advanced chips and semiconductor manufacturing equipment as a major risk for China's artificial intelligence industry. Such restrictions could be introduced as early as the end of this year, it said.

Huang had been among the most prominent opponents of stringent restrictions on chip exports to China. His departure, alongside the prospect of a more sceptical US Congress towards artificial intelligence, could make it increasingly difficult for Chinese AI companies to secure the computing capacity required to develop their models.

Morningstar senior equity analyst Chelsey Tam told Reuters that Chinese companies operating large language model businesses could face negative consequences if the US government further restricts their access to American chips.

Chinese optical transceiver suppliers face additional pressure

Beyond semiconductor exports, Chinese hardware suppliers are also confronting the possibility of fresh US trade restrictions.

The US government is working on a national security measure that could prohibit imports of new Chinese optical transceivers, potentially dealing a significant blow to domestic suppliers Zhongji Innolight and Eoptolink Technology, Reuters reported.

Both companies derive a substantial portion of their revenues from the US market, leaving them particularly vulnerable to restrictions on Chinese-made technology products.

The developments have reinforced concerns that the Nvidia leadership crisis could have broader implications for the global AI supply chain, potentially accelerating the fragmentation of the technology ecosystem into competing US and Chinese markets.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)