China’s New AI Chip Is a Threat to Nvidia. Remember Deep Seek.

China keeps advancing its artificial-intelligence tech base. That can’t be ignored. (Lam Yik/Bloomberg)

Key Points

• Chinese scientists have developed LightGen, a photon-based computing chip that outperforms Nvidia’s silicon-based wafers in AI training and inferencing, says a report.
• Meta Platforms acquires Manus, an AI start-up claiming to have developed a general AI agent, for approximately $2.5 billion.
• Meta, Nvidia, and Microsoft shares have fallen about over the past two months amid concerns about data-center spending and profit timelines.

China is hanging a new AI threat over Nvidia and America’s other chip giants that could undermine faith in Wall Street’s biggest growth driver, much like it did only a year ago with the DeepSeek chatbot launch.

Scientists at universities in Shanghai and Beijing have developed a photon-based computing chip for artificial-intelligence training and inferencing that can outperform traditional silicon-based wafers, such as those produced by Nvidia , the South China Morning Post reported.

Dubbed LightGen, the new chip is faster and more efficient than Nvidia’s Blackwell GPUs, the report said, although its use case is tailored more for video production and image synthesis than broader AI workloads.

And Meta Platforms is paying $2.5 billion for Singapore-based Manus, an AI start-up founded in China, that claims to have developed a general AI agent, the world’s first, that tops OpenAI’s Deep Research.

These two developments should worry investors who are waiting—maybe not all that patiently—for the biggest AI-related stocks to find their next jumping-off point.

In the past couple of months, the titans have stumbled over worries about the rapid pace of data-center spending and the long time frame expected before that money translates into profit.

Nvidia shares have fallen around 8%. Microsoft and Meta have dropped double digits—10% and 11.8%, respectively.

Pullbacks for smaller hyperscalers have been even more extreme, with Oracle down 28%, while AI cloud platform provider CoreWeave has dropped more than 45%.

Megacap tech gains will remain a key plank for the S&P 500 ’s overall performance in 2026, with the Magnificent Seven driving around 45% of the benchmark’s expected 15% gain, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.

The two biggest AI-related stocks, Nvidia and Microsoft, will comprise around 30% of the S&P 500’s expected advance.

That could leave the market vulnerable to a sharp early-year pullback if investors see the latest advances in China as a threat to U.S. leadership in AI technologies.

So far, though, investors are still willing to back domestic AI start-ups despite the emerging competitive challenges.

OpenAI wants to raise another $100 billion by the spring in a move that would value the ChatGPT creator at $830 billion, The Wall Street Journal reported.

That would equate to around 24 times the midpoint of its projected 2026 sales of around $35 billion, according to Gene Munster of Deepwater Asset Management.

But there’s still a problem. Both the AI companies and the federal government aren’t prepared to deprive China of important components.

In December, President Donald Trump gave Nvidia the go-ahead to sell its powerful H200 processors to China-based customers—provided it pays a 25% revenue share to Washington.

“We will protect National Security, create American Jobs, and keep America’s lead in AI,” Trump posted on Truth Social. “Nvidia’s U.S. Customers are already moving forward with their incredible, highly advanced Blackwell chips, and soon, Rubin, neither of which are part of this deal.”

China, however, hasn’t issued a license that would allow Nvidia to sell the H200, and reports suggested regulators in Beijing are pushing domestically made processors over those made in the U.S.

That gives the sense that China is confident of the strides it’s making in AI technologies. Its biggest, DeepSeek’s R1 launch, spooked investors last January and triggered a 17% plunge in Nvidia shares and a 3% slump in the Nasdaq Composite.

LightGen’s emergence isn’t that big of a worry—yet. But it’s also worth noting that DeepSeek’s official launch was Jan. 20, 2025, a full seven days before the market’s reaction.

And with AI-related stocks still underperforming over the final trading sessions of the year, with issues such as data-center capital expenditures and a muted takeup of the new technology by real economy companies, China’s latest advances shouldn’t be ignored.

Write to Martin Baccardax at martin.baccardax@barrons.com