China isn’t begging Nvidia anymore. Watch homegrown tech plays instead
Perhaps the biggest outcome of the latest U.S.-China trade talks is China’s increased confidence in its homegrown technology. Alibaba and Baidu both saw their stocks surge this past week after news of AI advances and business deals . Huawei touted AI chip systems better than Nvidia’s at the same time as Beijing extended a probe into the U.S. chipmaker. Chinese regulators are now discouraging domestic tech giants from buying Nvidia chips, the Financial Times reported, citing unnamed sources. “It’s unlikely that Chinese companies can opt to completely do away with foreign chips, for now,” said Brian Tycangco, analyst at Stansberry Research. “But news coming out of China like this is not coincidental. It’s meant to send a message and, potentially, weaken President Trump’s hand in trade war negotiations.” “For the time being, the safe play is to stick with the big names in the industry, such as SMIC, Alibaba and Baidu,” the analyst said. “We have no way of telling where the trade war will eventually end up. China’s chip ecosystem is growing fast, but also entails a significant risk for smaller players with limited access to capital.” Surviving Nvidia restrictions Major Chinese AI players appear to have survived U.S. restrictions on Nvidia so far. Bernstein analysts said in a note Friday that they assume Chinese internet companies can continue to access Nvidia-based computing power overseas. The Bernstein analysts have overweight ratings on both U.S.-listed Alibaba and Hong Kong-listed Tencent . “Tactically, Q2 2025 felt like a narrative shift moment for the market’s awareness of AI-driven growth in China,” they said. “The latest news flow around China banning purchases of Nvidia chips is unhelpful on the margin for AI development progress, at least domestically,” the Bernstein analysts said. But they noted that, over time, domestic chip alternatives will likely at least “hit ‘good enough’ territory.” Technology self-sufficiency The ramp up in China-made chips is just part of Beijing’s long-term ambitions for technology self-sufficiency. The strategy will result in “an acceleration of localization in key components (sensors, motors, reducers, batteries), with China-based suppliers expected to dominate global cost curves and increase competitive pressure on incumbent leaders,” Morgan Stanley analysts said in a report Wednesday on thematic investing in Asia. In the firm’s first-ever Asia thematic focus list, only a handful of mainland China-based companies were recommended, primarily in “AI & Tech Diffusion.” The Morgan Stanley screen looked for stocks based on factors such as valuation and earnings expectations, in addition to thematic exposure. The narrow selection includes Shenzhen-listed Naura Technology , a leading semiconductor equipment manufacturer. The Morgan Stanley analysts also highlighted Shenzhen-listed Inovance Technology for its automation and humanoid robot potential, as well as Hong Kong-listed electric car company Xpeng , citing its edge in advanced driver-assist technology and investments in humanoid robotics. In addition, “Tencent should benefit as the market shifts focus from [large language model] capabilities to AI applications and monetization,” the Morgan Stanley analysts said. Tencent on Tuesday announced new AI tools for industrial use at a two-day digital ecosystem summit in Shenzhen. “China is developing cutting edge AI capabilities with significantly less hardware, redefining expectations of computing power requirements,” Morgan Stanley said, highlighting a Beijing policy of “AI+.” China in late August released details on the plan, which calls for integrating AI across industries. Beijing is expected to discuss its five-year development goals at a high-level meeting in October. — CNBC’s Michael Bloom contributed to this report.
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