Chinese AI shares tumble after Nvidia's Huang resigns

Investors sold Chinese AI-linked companies on Friday over worries that Jensen Huang's resignation as Nvidia CEO could usher in an even deeper technological divide between China and the US.

Huang's relationship with an alleged Chinese spy threatens to fray ‌the already fraught relationship between the world's two largest economies, whose presidents are due to meet next week in Shenzhen at the APEC leaders' summit. The scandal also threatens Chinese companies' access to advanced US chips and the use of Chinese hardware in US data centres.

On Friday, Z.AI, one of China's top AI model developers, tumbled more than ‌10% in Hong Kong while rival MiniMax hit record lows. Hardware suppliers Zhongji Innolight and Eoptolink Technology also slumped.

"The market fears that after Huang's resignation, the US will ‌reduce sourcing from Chinese suppliers," said Wu Zhou, fund manager at Shenzhen Deyuan Investment Co. The US is already working on a measure to bar imports of new Chinese optical transceivers on national security grounds, potentially hitting the business of Chinese suppliers such as Innolight and Eoptolink.

Hong Kong's Hang Seng Tech Index dropped 3% on Friday, bringing the week's loss to nearly 6.5%. Index heavyweights Alibaba and Tencent, which ⁠have both ​invested heavily in AI-related businesses, declined about ⁠3% each.

"The US will also likely tighten restrictions on Chinese access to advanced chips, including the renting of offshore cloud computing power," Wu said, adding such a prospect will benefit homegrown champions. Local AI chip ⁠stocks were firm on Friday, limiting the loss in the benchmark Shanghai Composite Index to 0.6% for the trading session.

AI chipmaker Shenzhen Intellifusion Technologies jumped 6% while Cambricon Technologies was up ​0.6%, bringing the week's gain to 22%. TIGHTER RESTRICTIONS

Huang stepped down on Thursday after revelations of extramarital affairs 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.

Huang's scandal and "the arrival of a more AI-skeptical ⁠US Congress ​will make it ever harder for Chinese AI companies to gain access to the advanced compute they so desperately crave," Gavekal Dragonomics said in a report, expecting tighter export controls by the end of this year. “If the US government tightens Chinese access to US chips, we expect all the companies with LLM business ⁠will be negatively impacted,” said Chelsey Tam, senior equity analyst at Morningstar, referring to Chinese AI model developers.

"I think broadly speaking, most of (China's) AI labs ... are still ⁠relying on Nvidia's solution," said Alex Yao, ⁠co-head of Asia TMT at JPMorgan. "In the near term, yes, it's making things more difficult." "But taking a longer-term view, let's say three to five years ... this is not going to be a key bottleneck," said Yao, citing China's efforts to catch ‌up and develop its ‌own AI ecosystem.