The AI competition between the United States and China has been a topic of heated discussion in recent years and the pace of AI advancement has only increased, which has recently culminated in the Chinese tech startup DeepSeek unveiling its new AI language models, which have caused a stir in the tech sector of the US, with stocks listed on the NASDAQ taking the brunt of the damage.
However, it is important to note that this story does not solely revolve around the release of DeepSeek. It is a broader story of a heated competition between the tech sectors of the US and China and the implications it has on the global economy.
For this reason, investors are trying to balance their risk reward ratio in trading in order to not miss out on the hypergrowth of the AI sector in the years to come.
To better understand what effects the Chinese AI tech can have on the performance of the NASDAQ, we must consider several key aspects that can tilt the market in favor of either country.
The role of AI in the returns of the NASDAQ
NASDAQ is a tech-focused exchange that lists several giants of the industry among its ranks, with NVIDIA and AMD being of particular interest in the field of AI, as they are engaged in the manufacturing of semiconductors, which is essential for developing AI tech.
The stock of NVIDIA has been one of the favorites of investors in recent years, as the stock has returned over 1,000% over the past 5 years.
This has slanted the weight of the stock in major tech indices, such as the Nasdaq-100, where NVIDIA stock accounts for 8.71% of the total portfolio of the index. Which means that when NVIDIA underperforms, chances are that the entire index will also deliver subpar returns, which affects the confidence of the investing community in the health of the United States tech sector and the broader economy.
Alongside NVIDIA, one of the pivotal players spearheading the AI revolution has been OpenAI, thanks to its ChatGPT large language model. Since OpenAI is not a publicly traded company, the effects of increasing competition from China are less apparent on the outset.
How China competes with the United States in the AI sphere
The Chinese economic model differs vastly from the United States, as the government mandates the creation of affordable credit, which is invested in select strategic fields to build up the capacity for the country to compete on the global scene.
Such has been the case of AI and the Chinese tech sector in recent years, which had experienced a considerable boom in the past, causing the government to crack down on the sector to rein in their executives.
However, DeepSeek is a hedge fund led effort to create a large language model that challenges ChatGPT and offers a service that is more effective and affordable at the same time.
The DeepSeek-V3 language model has overtaken all other AI apps on Apple’s App Store in the United States, which has caused havoc among the U.S. tech sector, resulting in massive sell-offs of major tech stocks like NVIDIA, AMD, and others.
How could NASDAQ perform in the future?
An increased competition in China has brought the valuations of many NASDAQ-listed equities into question, as most trade at several multiples above their EPS.
Therefore, the degree to which the release of DeepSeek and competition in the AI sphere could affect the performance of the NASDAQ-100 index in the coming years has become a hot topic of discussion.
While it goes without saying that the NASDAQ is home to much more than AI stocks, the weight of these businesses in the primary index has become more and more dominant over the past few years. Therefore, if the United States AI capabilities fall behind their Chinese counterparts, the returns generated by the NASDAQ-100 are guaranteed to suffer.
In order to combat this, a new $500 billion Stargate program has been announced by President Trump, which seeks to greatly bolster the capacity of the United States to take a leap ahead of China in becoming the first country in the world to achieve artificial general intelligence.
While such prospects are still years ahead, investing heavily in the sector now gives the U.S. plenty of flexibility in the future and also creates new high-tech jobs for the local labor market.
It is also worth noting that the issue of Taiwanese sovereignty has not disappeared from the picture, as the AI race is just as much about geopolitics, as it is about business and economics.
Therefore, while the news from China has had a negative short-term impact on the NASDAQ, the long-term winner of the AI race is still yet to be determined.
