The United States' efforts to restrict China's access to advanced semiconductors will prove counterproductive, says Jefferies' Christopher Wood amid Donald Trump's call to make the US an "artificial intelligence superpower".
The DeepSeek affair will prove to be the most important event in the US stock market since the announcement of Microsoft's investment in ChatGPT, Wood said in his recent Greed and Fear note.
On his first day in office, Trump moved to immediately halt the implementation of key safety and transparency requirements for AI developers to spur private-sector investment in the industry.
Trump pushed for boosting US dominance in AI, demanding a new policy direction for a rapidly evolving technology that's the focus of intense competition with China.
Despite previous curbs, 10% of Nivida's banned HBM-based chips ended up in China last year via the second-hand market, according to Wood.
It is undoubtedly the case that the cheaper the access to AI becomes, the more the demand for compute will grow, he said. "But that does not mean that semiconductor stocks can immediately return to nirvana because of the little issue of pricing power, or the lack of it."
The markets are clearly taking the view that it is better to be a buyer of tech hardware than a seller, given that the semiconductor index has underperformed three of the four major hyperscalers, Wood said.
Wood said that the "bigger message' from the DeepSeek episode is the "terrifying" potential for disruption represented by AI.
DeepSeek—a Chinese AI startup founded by quant fund chief Liang Wenfeng—has flipped the global AI narrative. Its latest model offers comparable performance to Western AI giants at a fraction of the cost. The launch of the model led Nvidia Corp. to witness the biggest market cap erosion in history.
DeepSeek's AI assistant topped the list of most downloaded mobile apps across 140 markets, with India accounting for the largest percentage of new users.
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