Alibaba, Tencent fall on report of US remote chip curbs

Chinese artificial intelligence stocks fell sharply on Thursday, Nov. 12. Investors worried that the espionage controversy around Nvidia could lead Washington to tighten scrutiny of how Chinese cloud operators get advanced chips. Alibaba ↘ 1.17% fell as much as 7.3% in Hong Kong and pulled the Hang Seng Tech Index lower, The Edge Malaysia reported, carrying Bloomberg's story. AI model developers Z.AI and MiniMax each dropped at least 8%.theedgemalaysia.com

Alibaba rents Nvidia chips through Megaspeed International, a Singapore-based company. Its founder, Alice Huang, had an affair with Nvidia CEO Jensen Huang and is suspected of working for Chinese intelligence, according to the same report.theedgemalaysia.com

Remote-access rules in focus

The selloff picked up after The Information reported that the U.S. Commerce Department was preparing to finalize rules that would stop Chinese AI companies from using advanced chips remotely through data centers overseas, Investing.com reported via Yahoo Finance. The measure could be announced this month. It would extend export controls to seven more countries, including Malaysia, Singapore and Thailand. Tencent also fell on the report.finance.yahoo.com

Reuters reported that Chinese AI companies are rushing to rent Nvidia-powered computing capacity at data centers outside China before any new curbs arrive, citing three people familiar with the matter. Singapore business filings reviewed by Reuters show that an Alibaba subsidiary provided financing to Speedmatrix, a Malaysian company linked to Megaspeed.heraldonline.com

"They've been stockpiling chips since the start of the year, so they have some buffer, but R&D timelines will inevitably be postponed," said Julia Pan, an analyst at UOB Kay Hian, in comments carried by The Edge. The pressure comes just before Alibaba and Tencent report their September-quarter results next week.theedgemalaysia.com

A widening scandal

Jensen Huang admitted on Nov. 8 to an extramarital affair. This followed New York Times reports that U.S. officials had concluded Alice Huang was an asset of China's Ministry of State Security, AFP reported. The two are not related. The Justice Department is investigating whether Megaspeed smuggled restricted chips into China. Megaspeed denies this and describes itself as a "compliant and legitimate company."afp.com

CNN reported that Treasury Secretary Scott Bessent clashed with Commerce Secretary Howard Lutnick over Commerce's reluctance to add Megaspeed to the entity list. CNN also said Nvidia's board is meeting to discuss Huang's future after reports of a second affair, this one with an Nvidia executive.edition.cnn.com

Beijing has called the spying allegations "baseless" smears. On Thursday it urged the U.S. not to use them to justify technology restrictions, according to The Edge.theedgemalaysia.com

"China's sizable grey market for restricted Nvidia GPUs has long been an open secret and a glaring loophole in US export controls," said Chai Chaoyi, a researcher at 86Research. "A high-profile crackdown could deter major intermediaries and materially disrupt this supply."