Market Watch: Huida's "China Salesman" ends, Chinese technology stocks are under pressure

The Wall Street Journal quoted the financial media MarketWatch as saying that former Nvidia CEO Jensen Huang was an "important voice" in promoting the sale of chips to Chinese companies. Now investors are preparing for the introduction of more stringent restrictions by the United States.

Reports indicate that Huang resigned earlier this week, but even before that, he had faced scrutiny for his push to sell the company's AI chips in China. Now that he has left office, concerns that Huida Chip will face tighter controls are dragging down Chinese technology stocks.

Hong Kong-listed shares of Alibaba Group Holding and Tencent Holdings both fell more than 3% on Friday following Huang's resignation. Huang Renxun has led the company for 33 years since he participated in the founding of Huida. Colette Kress, Huida's chief financial officer, was appointed interim CEO during the crisis.

Brendan Burke, director of semiconductor, supply chain and emerging technology research at Futurum Group, said Huang's departure "has eliminated the most influential voice opposing U.S. chip export controls." As a result, investors in Hong Kong and Shanghai "anticipate that controls will be tightened faster and more intensely as a result," he said.

Burke pointed out that Chinese AI lab stocks have been hardest hit by the above concerns because these companies rent computing power from data centers in Southeast Asia to train models on Huida hardware.

The region is back in the spotlight after Huang admitted to having an affair with a former executive at Singapore-based cloud services provider Megaspeed. Burke said the U.S. government would likely take action to "block this path."

Although the United States restricts Chinese companies from importing Huida's higher-performance chips, and the Chinese government imposes such restrictions to a certain extent, these companies can still legally rent computing power through data centers in the region that are not subject to U.S. export controls.

On the other hand, Chinese chip designers, including Shanghai-listed Cambricon Technologies, saw their share prices rise on Friday because they "become the default alternative" if the use of Huida chips becomes more restricted, Burke said.

"The market is betting that Huang Renxun's departure will force China to become self-reliant sooner, which is good for companies that provide alternatives, but not good for companies that are in desperate need of top computing power," Burke said.

Zephirin Group analyst Lenny Zephirin holds a similar view. He said weakness in Chinese technology stocks on Friday reflected growing concerns about China's ability to continue using U.S. chip technology.

He said Huang was essentially Huida's "China salesman." He noted that the embattled former CEO had long advocated for Chinese companies to continue using American chips.

Zeferin said Huang's resignation means the disappearance of an influential corporate voice "in the debate over which American high-performance chips should be allowed to be used in China."