The global technology sector experienced significant volatility last week as investors grappled with developments challenging the dominance of Western chipmakers. The disruption began on Monday when the Chinese memory chip manufacturer CXMT debuted on the Shanghai stock market, witnessing a 466% surge in value to 3.3tn yuan (£365bn). Concurrently, reports emerged that China had successfully developed its own deep-ultraviolet lithography tools, a critical technique in the chip supply chain previously monopolized by the Dutch firm ASML.
These events triggered a wider market reaction. By Thursday, the Nasdaq index had fallen into correction territory, having dropped more than 10% from recent highs before a slight recovery. Nvidia shares declined by more than 5% by Thursday evening, a period during which Apple briefly overtook it as the world’s most valuable listed company. While a rebound occurred on Friday following strong financial results from Microsoft and Amazon, the week left a lasting impact; the Kospi index recorded its worst month since the global financial crisis of October 2008, despite a nearly 20% jump.
Market analysts suggest that while CXMT’s debut is significant, the company acts more as a contributor to the global AI economy than an immediate threat to Nvidia. CXMT specializes in dynamic random-access memory (Dram) chips, which are essential for storing data but are distinct from the graphics processing units (GPUs) that Nvidia produces. Alvin Nguyen, an analyst at Forrester, described the sell-off in memory chip shares as an "overreaction," noting that demand for memory chips remains high and shortages are projected to persist until 2030.
The potential for China to produce its own lithography tools remains a more complex concern. While these lasers are vital for etching silicon wafers, Mark Boost, CEO of the UK cloud company Civo, argued that investors are overreacting to short-term threats. He stated that while manufacturing these machines is a symbolic victory, they do not yet serve as a commercial replacement for ASML’s technology due to differences in efficiency and reliability. Nguyen agreed, emphasizing that building semiconductor fabrication plants takes years.
Ultimately, these developments are seen as a predictable outcome of US export controls, which have incentivized China to build domestic capabilities. Long term, this week’s advances are gamechanging for the AI economy, although in many ways they should have been predictable. Given US export controls, China has had little choice but to develop domestic capabilities. The recent market correction highlights the fragility of an AI economy that relies heavily on Nvidia, which Morningstar identified as a key factor in the week's decline. As Nguyen noted, while Nvidia’s status as the "central bank of AI" may eventually shift, the company’s value remains substantial, even if it eventually settles at a different valuation in the future. Many believe that it cannot last. What is on the other side is less clear.
“SK Hynix, Micron, others, they can’t produce enough memory chips to begin with … the demand keeps growing even higher,” Nguyen said.
“Fabs [semiconductor fabrication plants], as I know them, still take years to develop,” said Nguyen.
