Stock market turmoil sheds stark light on the opaque AI economy

A recent surge in the Chinese market sent shockwaves through global stock markets, highlighting the opaque nature of the AI economy. On Monday, Chinese memory chipmaker CXMT debuted on the Shanghai stock market, soaring 466% to 3.3tn yuan (£365bn). The same day, it was reported that China had developed its own tools for deep-ultraviolet lithography, a crucial technique in the computer chip supply chain, a field where Dutch company ASML held a monopoly.

This led to a drop in AI-linked shares, particularly chipmakers, causing global indices to slide. South Korea's Kospi fell 11.5% on Tuesday and a further 6% on Wednesday, while the US tech index Nasdaq fell into correction territory at one point before easing back. Nvidia's stock fell more than 5% as it was overtaken by Apple as the world's largest listed company.

However, strong financial results from Amazon and Microsoft calmed traders' nerves, leading to a rebound in the Kospi and a day of optimism for the market. The developments raised questions about the implications for the global AI economy and why western investors were so jittery. CXMT's double whammy is more of a boon to the global AI economy than a threat, as it produces complementary, not competing goods.

The company makes dynamic random-access memory (DRAM) chips, which store the data that other AI chips draw on for their calculations. While CXMT could be a threat to SK Hynix and Micron, who do make memory chips, Alvin Nguyen, an analyst at research firm Forrester, believes the sell-off in these shares was an overreaction given the ongoing memory chip shortage.

The more serious concern is China's potential ability to produce deep-ultraviolet lithography tools, which could allow them to rival Nvidia in GPU production. However, this is still years away, as semiconductor fabrication plants take years to develop. The advances are gamechanging for the AI economy, but should have been predictable given US export controls.

Nvidia's shares are gradually recovering, but remain below their previous value, and the anxiety surrounding the company lies in its central role in the AI economy, holding up vast parts of the global stock market.