By Martin Baccardax
U.S. tech stocks, and the artificial-intelligence sector specifically, may be facing another competitive threat from China that could undermine faith in the market's biggest growth driver heading into the first anniversary of the DeepSeek chatbot launch.
Reports from the South China Morning Post last week said scientists from Shanghai Jiao Tong University and Tsinghua University have developed a photon-based computing chip that can outperform traditional silicon-based wafers, such as those produced by Nvidia, in both AI training and inferencing.
Dubbed LightGen, the new chip is faster and more efficient than Nvidia's Blackwell GPUs, the report said, although its use case is tailored more toward video production and image synthesis than broader AI workloads.
Meta Platforms, meanwhile, reached a deal Tuesday to buy Manus, an AI start-up first founded in China and now based in Singapore, in a deal worth around $2.5 billion. Manus claims to have developed a general AI agent, the world's first, that tops OpenAI's Deep research.
These recent developments highlight a key concern for investors looking at the next phase of performance for the biggest AI-related stocks, which have stalled over the latter part of the year amid worries over the rapid pace of data-center spending and the long time frame expected before that investment translates into profit.
Nvidia shares have fallen around 8% over the past two months, while Microsoft has slumped 10% and Meta has tumbled 11.8%. Pullbacks for smaller hyperscalers have been even more extreme, with Oracle down 28%, while AI cloud platform provider CoreWeave has dropped more than 45%.
Megacap tech gains will remain a key plank for the S&P 500's overall performance in 2026, with the so-called Magnificent Seven likely to drive around 45% of the benchmark's expected 15% gain, according to data from senior S&P Dow Jones Indices senior index analyst Howard Silverblatt.
The two biggest AI-related stocks, Nvidia and Microsoft, will comprise around 30% of the S&P 500's expected advance.
That could leave the market vulnerable to a sharp early-year pullback if investors see the latest advances in China as a threat to U.S. leadership in AI technologies.
Thus far, however, investors are still willing to back domestic AI start-ups despite the emerging competitive challenges.
The Wall Street Journal reported last week that OpenAI is looking to raise another $100 billion by the spring in a move that would value the ChatGPT creator at around $830 billion.
That would equate to around 24 times the midpoint of its projected 2026 sales of around $35 billion, according to Deepwater Asset Management's Gene Munster.
Meanwhile, AI companies, or for that matter the U.S. government, aren't prepared to deprive China of important components.
President Donald Trump said earlier this month that Nvidia could sell its H200 processors, the group's second-most powerful, to China-based customers provided it pays a 25% revenue share to the U.S. government.
"We will protect National Security, create American Jobs, and keep America's lead in AI," the president said on his Truth Social platform. "Nvidia's U.S. Customers are already moving forward with their incredible, highly advanced Blackwell chips, and soon, Rubin, neither of which are part of this deal."
China, however, hasn't issued a formal license that would allow Nvidia to sell the H200, and reports suggested regulators in Beijing are pushing domestically made processors over those made in the U.S.
That could suggest that China is confident of the strides it's making in AI technologies, the biggest of which, DeepSeek's R1 launch, spooked investors in January and triggered a 17% plunge in Nvidia shares and a 3% slump in the Nasdaq Composite.
LightGen's emergence hasn't risen to that level of concern, but it's also worth noting that DeepSeek's official launch was Jan. 20, 2025, a full seven days prior to market's reaction.
And with AI-related stocks still underperforming over the final trading sessions of the year, with issues such as data-center capex and a muted takeup of the new technology by real economy companies, China's latest advances shouldn't be ignored.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 30, 2025 06:09 ET (11:09 GMT)
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