China is winning AI race despite chip curbs: Jefferies
What's the story
China is emerging as the strongest long-term contender in the global artificial intelligence (AI) race, as per global brokerage firm Jefferies. The report highlights China's potential dominance in consumer-facing AI applications. "The Chinese are best positioned to prevail in AI, particularly in the mass consumer market," Jefferies said in the report. This comes at a time when investors are wary of the sustainability of massive AI infrastructure spending by tech giants worldwide.
Market analysis
Semiconductor stock correction and AI investment concerns
The recent correction in semiconductor stocks has brought many chipmakers close to their 200-day moving averages.
This has raised questions about whether the sell-off is just a technical correction or an early sign of slowing capital expenditure by global hyperscalers.
Despite these concerns, Jefferies' report says there's little evidence that AI investment is slowing.
Earnings impact
Mixed investor reactions to tech earnings
The report also highlights mixed investor reactions to recent earnings from major technology companies.
Alphabet's stock came under pressure after it reported negative free cash flow in Q2 2026 for the first time since its IPO in 2004.
Meanwhile, Meta's shares fell by 10% in after-hours trading after its free cash flow plunged by some 90%.
Microsoft saw an 8% rise in after-hours trading after it kept its capital expenditure guidance for calendar year 2026 at around $175 billion.
Outlook
AI industry may mirror the airline sector
According to Jefferies, demand for computing power will continue to surge throughout the AI era, though the customer base powering it may shift over time.
The brokerage noted that the AI industry may mirror the airline sector rather than the "winner-takes-all" model of the internet era.
While firms are heavily funding AI infrastructure today, massive capital expenditure alone will not guarantee superior returns, leaving ultimate success to execution, efficiency, and capturing end-user demand.