China Bans Foreign AI Chips Amid Global Market Jitters
The global stock markets have faced a rough patch recently, with European markets dipping and Asian chipmakers tumbling, driven by rising concerns over what many are now calling an AI investment bubble. In the past 24 hours, investor sentiment has been shaken as fears over lofty tech valuations came to the forefront. On Wall Street, the S&P 500 closed down by 1.17%, led lower by sharp losses in tech stocks, including a steep 7.94% drop for Palantir, despite the company reporting strong earnings and raising its revenue outlook. This has sparked a wider discussion among analysts about whether the markets are on the verge of a broader equity correction, with the focus increasingly on the so-called "Magnificent 7" tech giants that have diverged from the rest of the S&P 500 in performance.
Asia started the day with a similar risk-off sentiment. Japan’s Nikkei fell by 2.5% and South Korea’s Kospi lost 2.85%, although some indices clawed back later in the session. Taiwan Semiconductor Manufacturing Co. shares fell by 3%, while Japanese Advantest Corporation dropped by 6%, highlighting the vulnerability of chipmakers in the current climate. European markets fell more modestly, with London’s FTSE 100 slipping 0.1%, and the Dax and Ibex losing around 0.8%.
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Adding to market turbulence, China has taken a bold step in the tech space by banning foreign AI chips in state-funded data centers. According to reports, new projects receiving any state support must now rely exclusively on domestically produced AI chips. Projects less than 30% complete have been ordered to remove any foreign chips, while more advanced projects will be assessed individually. This move is seen as one of China’s most aggressive steps yet to achieve self-sufficiency in AI technology and reduce reliance on foreign hardware, particularly from U.S. chipmakers like Nvidia, AMD, and Intel.
This decision comes shortly after a high-stakes meeting between Presidents Donald Trump and Xi Jinping, which had eased some trade tensions between the two nations. Despite that, China’s access to advanced AI chips has remained a key point of friction. Nvidia, whose AI chips had dominated the Chinese market in 2022, now holds virtually no market share, opening opportunities for domestic competitors such as Huawei. Analysts suggest this could reshape the AI chip industry globally, as China seeks to secure its technological independence while foreign companies are left grappling with restricted access to one of the largest AI markets in the world.
Investors are now left navigating a perfect storm of market corrections, high tech valuations, and geopolitical shifts in technology policy. With over $1 trillion invested in AI initiatives and most gains concentrated among a small group of firms, the question on everyone’s mind is whether the current market euphoria can be sustained—or if the bubble is finally starting to show cracks. The coming months will likely reveal whether these market jitters are temporary or signal deeper structural changes in global technology and finance.
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