Chinese chip gains shake confidence in AI stocks

AI-linked stocks endured a volatile week after Chinese chipmaker CXMT listed in Shanghai and soared by 466% in value to 3.3tn yuan (£365bn), while reports said China had developed its own deep-ultraviolet lithography tools. The developments rattled investors because ASML had previously held a monopoly over the lithography machines used to make advanced chips.

The sell-off hit chipmakers and major indices worldwide. South Korea’s Kospi fell 11.5% on Tuesday and a further 6% on Wednesday, while the Nasdaq entered correction territory at one point after dropping more than 10% from its recent high. Nvidia lost more than 5% by Thursday evening before a rebound followed strong results from Amazon and Microsoft.

Analysts viewed some of the reaction as excessive. CXMT makes Dram memory chips rather than GPUs, meaning its products complement Nvidia’s core business rather than compete with it directly, and Forrester’s Alvin Nguyen said the memory shortage is likely to continue until 2030. China’s lithography progress could matter more over time, but analysts said commercial competition with ASML and Nvidia remains years away.

Investor anxiety also reflected concerns over Nvidia’s central role in the AI economy. A Wall Street Journal report said Nvidia was considering a $250bn (£186bn) backstop to OpenAI for a datacentre project, months after a $100bn deal between the companies fell apart, reinforcing fears that AI market growth depends on opaque and circular financial arrangements.