TLDR
- Nvidia CEO Jensen Huang resigned Thursday after reports of extramarital affairs, including one with a woman the U.S. suspects worked for Chinese intelligence.
- Alibaba fell nearly 7% to $94.67, and Tencent dropped 2.6% in Hong Kong.
- Lawmakers are focused on a loophole that lets Chinese firms use advanced chips through cloud services.
- Chinese AI model firms fell Friday, while local chipmakers gained.
- The U.S. is also working on a ban on new Chinese optical transceiver imports.
Chinese technology and AI stocks fell after Nvidia CEO Jensen Huang resigned on Thursday. The losses spread beyond Nvidia to some of China’s largest companies.
Huang stepped down after reports of extramarital affairs. One involved an Nvidia employee, and another involved a woman the U.S. suspects worked for Chinese intelligence.
Alibaba shares fell nearly 7% to $94.67 on Thursday. Tencent dropped 2.6% in Hong Kong to HK$398.
Alibaba Group Holding Limited, BABA
The KraneShares CSI China Internet exchange-traded fund fell 3% to $22.91. Nvidia shares were down 5.6% Thursday afternoon.
The Cloud Chip Loophole
Huang had a relationship with Alice Huang, an executive at Megaspeed International. The Singapore-based cloud company bought billions of Nvidia chips.
That raised concerns that Chinese AI firms used Megaspeed to reach advanced Nvidia chips. Current export bans block China from buying sensitive technology, but they do not cover remote access through cloud services.
The Remote Access Security Act aims to close that gap. Sens. Dave McCormick, a Pennsylvania Republican, and Ron Wyden, an Oregon Democrat, cosponsored it.
Laila Khawaja, director at Gavekal Technologies, said the scandal adds momentum to tighter export controls. She said Chinese firms rely on remote access because their own chips are not advanced enough to train AI models.
The Institute of Progress estimates remote access makes up almost a quarter of China’s total computing power this year. It expects that share to reach a third next year.
House Speaker Mike Johnson said Thursday that Congress is building agreement on limiting chip exports to China. Chinese AI companies are now trying to rent Nvidia-powered computing capacity outside China.
How Chinese Markets Reacted
Chinese tech stocks were already in a bear market before the resignation. Some AI firms have not shown the earnings growth the market expected.
Philip Wool, deputy chief investment officer at Rayliant Advisors, said investors are no longer willing to ignore bad news. He expects a buying chance later in Alibaba and Tencent because they have large cash flows and billions of users.
Chelsey Tam, a senior equity analyst at Morningstar, said tighter U.S. rules would hurt all Chinese firms with large language model businesses. Wool said Chinese chipmakers could benefit if restrictions grow.
On Friday, AI model companies Z.AI and MiniMax Group fell sharply. Data centre suppliers Zhongji Innolight and Eoptolink Technology also slumped.
Wu Zhou, a fund manager at Shenzhen Deyuan Investment, said the market fears Nvidia will buy less from Chinese suppliers. Shanghai-listed Cambricon Technology rose 1.2% and was on course for a 22% weekly gain, its best in six months.
The U.S. is also working on a national security measure to bar imports of new Chinese optical transceivers. Innolight and Eoptolink earn most of their revenue from the U.S.
By the Friday lunch break, the Shanghai Composite and the CSI300 were little changed. Hygon Information Technology was set to gain 7% for the week.
