It Began With a Double Whammy

Stock market turmoil sheds stark light on opaque AI economy Even by the rollercoaster standards of AI, last week was particularly volatile. It began with a double whammy. On Monday, Chinese memory chipmaker CXMT floated on the Shanghai stock market, soaring 466% to 3.3tn yuan (£365bn).

That same day, reports emerged that China had developed its own deep-ultraviolet lithography tools, a technique essential to the chip supply chain that Dutch company ASML had monopolised. AI-related shares, especially chipmakers, dropped globally. South Korea's Kospi fell 11.5% on Tuesday and a further 6% on Wednesday, dragged down by SK Hynix and Samsung Electronics.

On Thursday, the Nasdaq briefly fell into correction territory, down more than 10% from its recent high. Nvidia lost over 5%, and was overtaken by Apple as the world's largest listed company. A Friday rebound followed strong Amazon and Microsoft results, with the Kospi jumping nearly 20% – though the week still gave it its worst month since October 2008. What do these advances mean?

CXMT makes DRAM memory chips, not the GP Us that power AI systems. So it is arguably complementary to Nvidia, not a threat, although it could pressure SK Hynix and Micron. Forrester analyst Alvin Nguyen called the sell-off an "overreaction", noting the global memory chip shortage is likely to last until 2030. "SK Hynix, Micron, others, they can't produce enough memory chips to begin with … the demand keeps growing even higher, he said.

The lithography news is more serious. These machines are precision lasers that etch the world's thinnest lines onto silicon wafers. If China can build them, it could, in theory, one day produce GP Us rivaling Nvidia's. But that is years away.

"Fabs [semiconductor fabrication plants], as I know them, still take years to develop, Nguyen said. Mark Boost, CEO of UK cloud firm Civo, agreed: "Investors are overreacting to the short-term threat. Manufacturing a handful of [deep-ultraviolet] machines is a massive symbolic victory, but not a commercial replacement for ASML overnight.

Fabs run on efficiency and yield, and until these Chinese tools can match western reliability, ASML's global dominance remains structurally safe outside mainland China. Long term, the advances are gamechangers, but predictable given US export controls. Chris Beauchamp of IG said: "These Chinese chip companies appear poised to do to the big chipmakers what they have done to steel, automobiles and a host of other industries, namely undercut them and outcompete them on price.

The correction may be an overreaction, but it reflects a circular, opaque AI economy resting heavily on Nvidia – the only company making a profit on AI. Nvidia's shares have crept back up but remain below last week's level. Contributing to investor anxiety was a Wall Street Journal report that Nvidia is considering a $250bn (£186bn) backstop for OpenAI's large datacentre project, roughly six months after a $100bn deal collapsed.

Morningstar cited it as a factor in Nvidia's decline. Nvidia has become the "central bank of AI", holding up vast parts of the economy and global markets in ways few understand. "Nvidia knows the gravy train's going to run out, Nguyen said. "Everybody's waiting for them to fall apart.