Trump's AI chip ban has fueled a blistering rally in China's chip and tech stocks — and sparked overheating concerns

The recent US restrictions on advanced AI chip exports have ignited a remarkable surge in China's semiconductor market, prompting a rush of investments into domestic companies. This fervor has escalated to such an extent that at least one firm has cautioned that its stock price may not reflect its actual value. The rally gained momentum earlier this year with the introduction of a cost-effective AI model named DeepSeek, and gained further traction as US chip export regulations created more opportunities for local competitors. According to Ray Wang, research director at Futurum Group, the absence of companies like Nvidia has effectively expanded the market for Chinese firms. Despite enduring a prolonged property downturn and ongoing trade tensions with the US, China's Hang Seng Tech Index has experienced a remarkable 67% increase in 2025, reversing a trend of decline that followed Beijing's tech crackdowns. Analysts from Deutsche Bank noted that while China is the world's largest chip importer, it is also finding ways to innovate and optimize its resources. DeepSeek, which utilizes less expensive components, exemplifies this shift. Reports have surfaced indicating that some Chinese companies have found ways to access high-end chips through alternative channels. Furthermore, there has been a notable push to develop indigenous chips, reducing dependency on US technology and mitigating potential security risks. This shift towards self-reliance in AI was highlighted during recent earnings reports. Notably, Cambricon, a prominent Chinese AI chipmaker, reported astonishing growth, with revenues soaring by 4,300% to approximately $403.3 million in the first half of 2025. The company’s stock has nearly doubled this year, bringing its market capitalization to 536 billion yuan. Wang remarked that Cambricon's valuation reflects not only its current success but also its future potential, especially given the limitations faced by Nvidia in the Chinese market due to export restrictions. Investor interest in Cambricon surged after it posted its first profitable quarter in late 2024 following a history of losses. However, the rapid increase in its stock price prompted the company to issue a warning regarding possible investment risks, highlighting the potential disconnect between stock prices and underlying fundamentals. Other Chinese chip manufacturers are also experiencing significant gains, with SMIC and Hua Hong Semiconductor seeing increases of 83% and 118% respectively this year. The excitement in the tech sector extends beyond semiconductors, as major companies like Alibaba and Tencent have seen their shares rise by 66% and 48% year-to-date, respectively, thanks to their investments in generative AI and cloud computing. While the competition among Chinese tech companies mirrors that of the US, with substantial investments pouring into AI, some analysts caution that the market may be overheating. Companies like Alibaba, ByteDance, Tencent, Huawei, and Cambricon are positioned as key players in China's AI race, yet they still trail behind Nvidia. Despite the demand for Nvidia's offerings, analysts have observed a trend of Chinese firms reducing their reliance on Nvidia chips. Instead, they are training AI models using standard devices and increasingly shifting to local alternatives. The US initiated restrictions on advanced AI chip exports in 2022 to curb Beijing's access to leading technology, and these constraints have only tightened since then. Recently, an easing of restrictions has allowed Nvidia and AMD to sell certain chips to China, but with conditions that require a portion of their revenue to be shared with the US government. However, the US also plans to revoke special export licenses for TSMC, which could impact China's chip production capabilities. Following a year of substantial gains, volatility has crept into the Chinese chip and tech stocks, as some investors begin to take profits. Cambricon's shares have dropped 17% over the past week but remain 87% higher for the year. Analysts are now pondering the potential for further growth, urging caution in light of the already significant increases observed this year.