(Nov 12): Chinese artificial intelligence (AI) stocks tumbled on concerns that cloud operators’ access to advanced chips may face tighter US scrutiny amid the escalating espionage and leadership controversy surrounding Nvidia Corp. 

Alibaba Group Holding Ltd slumped as much as 7.3%, dragging the Hang Seng Tech Index lower. The Internet giant rents Nvidia chips through Singapore-based Megaspeed International, whose founder had an affair with Nvidia chief executive officer Jensen Huang and is suspected of working for Chinese intelligence. Peers across the AI ecosystem also fell, with model developers Z.AI Co and MiniMax Group Inc sliding at least 8% each. 

Chinese hyperscalers face a new geopolitical overhang just as investors are taking profits ahead of next week’s earnings season, when Alibaba and Tencent Holdings Ltd are due to report September-quarter results. Access to advanced chips has been crucial for Chinese AI model developers, which have been competing with US firms for market share in coding and agentic workflows. 

“Now that scrutiny is ramping up, how long that tighter enforcement lasts will pose a real challenge for Chinese cloud service providers,” said Julia Pan, an analyst for UOB Kay Hian. “They’ve been stockpiling chips since the start of the year, so they have some buffer, but R&D timelines will inevitably be postponed.”

Nvidia has spent years lobbying Washington to allow it to sell more chips to Chinese customers. Those efforts are now coming under intense scrutiny because of the allegations surrounding Megaspeed founder Alice Huang and her relationship with Nvidia’s CEO. 

While Chinese chipmakers have fast caught up in their capabilities, supply remains constrained and the likes of Alibaba continue to seek Nvidia’s advanced chips to support AI and keep their vast cloud infrastructure running.

“China’s sizable grey market for restricted Nvidia GPUs has long been an open secret and a glaring loophole in US export controls,” said Chai Chaoyi, a researcher at 86Research. “A high-profile crackdown could deter major intermediaries and materially disrupt this supply.”

Beijing on Thursday urged the US not to use allegations of Chinese spying on Nvidia’s Huang to justify technology restrictions, adding that the two sides remained in contact ahead of a planned meeting between their leaders.

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