AI Starts off 2026 Strong – Don’t Forget China

U.S. AI stocks surged to start the first day of 2026 trading, continuing their lead. Nvidia (NVDA) has permission to sell H200 chips to China and has already had to boost production. Memory stocks are seeing a boom as demand continues apace. However, investors shouldn’t forget competition out of China.

While Chinese companies are clamoring for Nvidia chips, China’s long-term goals are still to switch to domestically produced chips. Their approach to funding could offer more stability than the U.S. market, where fears of a bubble have grown as companies take on massive amounts of debt and use circular funding to build out massive data centers.

China funds a lot of AI development through government programs. While there is private investment, a Stanford article from 2025 writes that China’s government VC funds have invested $912 billion over the last decade in strategic industries – and around 23% of that funding went to AI-related firms. Stanford notes that private VCs seem to be following the government’s lead, often investing in AI companies the government has funded.

With major U.S. players like Micron (MU) gaining over 200% in 2025, investors may also want to wait and see ROI before pushing prices up. Many are turning to “picks and shovels” companies in energy and utilities that support the creation of data centers and chips to find potential value investments.

If foreign players become stronger, they could also potentially create attractive opportunities. Investor enthusiasm is apparent: Baidu (BIDU) leaped as much as 15% in Friday’s trading after announcing it would spin off its own chip unit, and Shanghai Biren, a chipmaker, soared over 75% in its first day of trading.

DeepSeek, which roiled U.S. AI markets in 2025, also kicked off the year with a new article proposing strategies to train bigger models for less. More Chinese companies are choosing an open-source route, vs U.S. companies guarding their proprietary models. While this might change dominance dynamics in their own markets, if China as a whole moves forward with innovation using less powerful chips and less resources, it continues to threaten the U.S. spending thesis.

Of course, several major AI companies are expected to make their IPOs as early as this year, including OpenAI and Anthropic. Bringing these companies to public markets could create a lot of excitement among investors, but it will also open them up to greater financial scrutiny as more filings become public.

Overall, there are still very few companies in the world that have the machinery, knowledge, and capabilities of creating the specialized semiconductors necessary for AI models. However, the lead won’t last forever: companies around the world are pushing into the business as the AI race continues. 

Worries around a U.S. AI bubble creates questions around financing and return on investment. The U.S. government is supporting our AI sector, but it is also claiming revenue shares. Meanwhile, China’s government is strategically pouring money into their homegrown industries in a concerted effort to transform their economy. As investors consider the landscape a few years from now: who will be on top?

This material is intended for informational purposes only and should not be considered a personalized recommendation or investment advice. Investors should review investment strategies for their own particular situations before making any decisions.

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