The AI economy experienced a volatile week as investors reacted to developments challenging the dominance of Western chipmakers. On Monday, Chinese memory chipmaker CXMT debuted on the Shanghai stock market, with its value increasing by 466% to 3.3tn yuan (£365bn).
The same day, it was reported that China had developed its own deep-ultraviolet lithography tools, a technique crucial for the computer chip supply chain, previously a monopoly held by Dutch company ASML. These tools are essential for etching thin lines into silicon wafers.
AI-linked shares, particularly chipmakers, saw drops globally. South Korea’s Kospi index fell 11.5% on Tuesday and a further 6% on Wednesday, while the main US tech index, the Nasdaq, briefly entered correction territory on Thursday. Nvidia's shares lost over 5% by Thursday evening.
However, a rebound occurred the following day, with strong financial results from Amazon and Microsoft calming traders. The Kospi jumped nearly 20%, though it still recorded its worst month since October 2008.
Analysts suggest that CXMT, which makes dynamic random-access memory (Dram) chips, is more of a benefit than a threat to the global AI economy, as it produces complementary goods to GPU makers like Nvidia. Alvin Nguyen, an analyst at Forrester, described the sell-off in memory chip shares as an “overreaction” due to an ongoing global memory chip shortage expected to last until 2030.
The development of lithography tools by China is considered a more serious concern, as it could theoretically enable China to produce GPUs that rival Nvidia's. However, experts like Nguyen and Mark Boost, CEO of Civo, believe a serious competitor is still years away, citing the time required to develop semiconductor fabrication plants and match Western reliability.
Chris Beauchamp, chief market analyst at IG, noted that Chinese chip companies appear poised to potentially undercut and outcompete larger chipmakers on price in the long term. Investor skittishness was also attributed to reports that Nvidia was considering a $250bn backstop for an OpenAI datacentre project, following a previous $100bn deal falling apart. Morningstar identified this as a significant factor in Nvidia's decline.