Chinese AI shares tumble after Nvidia's Huang resigns

Investors dumped shares in Chinese AI models and hardware suppliers to the ​US on Friday, worried the resignation of Jensen Huang as ​Nvidia CEO could usher in an even deeper technological ‌divide ​between the world's two biggest economies. AI model stocks Z.AI Co and MiniMax Group fell sharply on worries of reduced access to advanced AI chips, while data centre suppliers Zhongji Innolight and Eoptolink Technology, whose businesses are ‌heavily reliant on US markets, slumped.

Local chip stocks gained as investors bet on tech self-reliance, leaving both the benchmark Shanghai Composite Index and the blue-chip CSI300 Index little changed by the lunch break. "The market fears that after Huang's resignation, Nvidia will reduce sourcing from Chinese suppliers," said Wu Zhou, fund manager ‌at Shenzhen Deyuan Investment Co.

"The US will also likely tighten restrictions on China's access to advanced chips, including the renting of offshore cloud ‌computing power." Wu said such a prospect bodes ill for AI firms that desperately need computing power, but benefits homegrown AI chipmakers.

Shanghai-listed AI chipmaker Cambricon Technology rose 1.2% and was on course to jump 22% this week in its best showing in six months. Domestic chipmaker Hygon Information Technology was poised to gain 7% this week.

TIGHTER RESTRICTIONS Nvidia CEO Jensen Huang stepped ⁠down on ​Thursday after revelations of extramarital affairs, ⁠including one involving a suspected Chinese spy, plunged the chipmaker into a crisis and sent shockwaves across the AI industry.

US House Speaker Mike Johnson said on Thursday there was growing ⁠consensus in Congress on limiting chip exports to China after the scandal. Meanwhile, Chinese AI companies are trying to rent Nvidia-powered computing capacity outside China, worried that the development ​around Nvidia's Huang could spur Washington to tighten restrictions on their remote use of advanced processors.

"The biggest risk to China's AI industry ⁠is that the scandal leads to a tightening of US export controls on advanced chips and chip-making equipment, possibly by the end of this year," Gavekal Dragonomics said in a ⁠report. Huang ​was the most influential opponent of tight chip export controls to China, so his scandal, "combined with the arrival of a more AI-skeptical Congress, will make it ever harder for Chinese AI companies to gain access to the advanced compute they so desperately crave," the think tank said.

“If ⁠the US government tighten Chinese access to US chips, we expect all the companies with LLM business will be negatively impacted,” Chelsey Tam, senior ⁠equity analyst at Morningstar, said, referring to ⁠Chinese AI model firms. The US government is also working on a measure on national security grounds to bar imports of new Chinese optical transceivers, potentially dealing a blow to Chinese suppliers Innolight and Eoptolink, which derive ‌most of their ‌revenue from the US.