Perhaps the biggest outcome of the latest US-China trade talks is China's growing confidence in its domestic technology.
Alibaba (BABA) and Baidu (BIDU) saw their shares rise this week following news of artificial intelligence breakthroughs and trade deals. Huawei boasted AI chip systems better than those of Nvidia (NVDA), as Beijing expanded an investigation into the US company. Chinese regulators are now discouraging local tech giants from buying Nvidia chips, the Financial Times reported, citing anonymous sources.
“It's unlikely that Chinese companies will be able to completely do without foreign chips for now. But news like this coming out of China is no coincidence. It's designed to send a message and potentially weaken President Trump's position in the trade war negotiations.”
Brian Tycangco, analyst at Stansberry Research.
“For now, the safest option is to stick with the industry's big names, such as SMIC, Alibaba, and Baidu. We have no way of knowing where the trade war will end. The chip ecosystem in China is growing rapidly, but it also poses significant risk to smaller players with limited access to capital.”
Overcoming Nvidia Restrictions
Major Chinese AI players appear to have so far resisted US restrictions on Nvidia.
Bernstein analysts said in a note on Friday that they assume Chinese internet companies may continue to access Nvidia-based computing power abroad.
Bernstein analysts have overweight ratings on Alibaba and Hong Kong-listed Tencent. “Tactically, the second quarter of 2025 felt like a turning point in the narrative around AI-driven growth in China,” they stated.
“The latest news about China banning purchases of Nvidia chips is not helping the progress of AI development at the margin, at least domestically,” the analysts added. But they noted that, over time, local chip alternatives will likely reach at least a “good enough” level.
Technological Self-Sufficiency
The increase in Chinese-made chips is just part of Beijing’s long-term ambitions to achieve technological self-sufficiency.
"The strategy will result in an acceleration of localization in key components (sensors, motors, gearboxes, batteries), with China-based suppliers dominating global cost curves and increasing competitive pressure on established leaders," said Morgan Stanley analysts in a report published Wednesday on thematic investing in Asia.
In the firm's first Asia-focused thematic list, only a handful of mainland China-based companies were recommended, primarily in the "AI and technology diffusion" segment. The selection includes Naura Technology, a leading Shenzhen-listed semiconductor equipment manufacturer.
Morgan Stanley (MS) analysts also highlighted Shenzhen-listed Inovance Technology for its potential in automation and humanoid robotics, as well as Hong Kong-listed Xpeng (XPEV) for its strength in advanced driver assistance technology and investments in humanoid robotics.
“Tencent should benefit as the market shifts its focus from the capabilities of large language models to AI applications and monetization.”
Morgan Stanley analysts.
On Tuesday, Tencent announced new AI tools for industrial use during a two-day digital ecosystem summit in Shenzhen.
“China is developing cutting-edge AI capabilities with far less hardware, redefining expectations for computing power requirements,” Morgan Stanley said, highlighting Beijing’s “AI+” policy.
In late August, China published details of the plan, which calls for integrating AI into all industries. Beijing is expected to discuss its five-year development goals at a high-level meeting in October.
