China's AI poses a threat to Google and Nvidia through competition from homegrown talent and domestic companies, China's government-backed efforts to develop a domestic AI ecosystem, and the potential for Chinese AI to rival Western AI models. For Nvidia, the danger is a direct loss of market share due to China's push for domestic chips and export restrictions, while for Google, the threat comes from both competition and a changing market landscape.
For Nvidia
Direct competition and market access: China is actively trying to replace Nvidia chips with domestic alternatives, as shown by government warnings against buying Nvidia's China-specific H20 chip and orders to suspend purchases of other Nvidia products. This has directly led to a significant drop in Nvidia's revenue from China.
Geopolitical and supply chain risk: Geopolitical tensions have already disrupted sales, and China's strategy to build an alternative AI ecosystem using homegrown chips creates a long-term competitive threat that could reduce Nvidia's overall dominance.
Talent and innovation: Chinese AI research is expanding rapidly, with a large talent pool and companies developing sophisticated models that challenge Western products. A Chinese competitor's AI model that rivals Western ones and was trained at a lower cost could shake investor confidence in Nvidia's market position.
For Google
Competitive threat: Chinese AI models are becoming increasingly competitive, potentially rivaling Google's own AI products.
Ecosystem competition: China's drive to build its own AI ecosystem with homegrown chips and models presents a long-term competitive challenge to Google's position in the global AI market.
Market landscape shifts: While Nvidia is a major supplier for Google, the rise of Google's own AI chips (TPUs) and competition from Chinese AI models create a dynamic and potentially more challenging market landscape for both Google and Nvidia.
Shared dangers
AI risks: Both Google and Nvidia must contend with broader AI risks like potential loss of control, the weaponization of AI, and the security of critical infrastructure, risks that China is also concerned about.
Geopolitical factors: The global geopolitical landscape, particularly tensions between the US and China, creates risks for both companies, affecting supply chains, market access, and investment:
“Investors are sending two leaders of the AI trade in opposite directions.
Alphabet took another step toward $4 trillion in market value on Tuesday, rising more than 1% to extend a monthslong rally fueled by enthusiasm for the Google parent's artificial-intelligence tools, cloud computing and chip business.
Nvidia shares slid 2.6%, dragging the world's biggest company by market capitalization further below a $5 trillion valuation reached just weeks ago.
Tuesday's divergence followed news that Meta Platforms is in talks to spend billions of dollars on Google's AI chips, one of the few alternatives to Nvidia's. But that was just the latest in a split between the two index heavyweights that this month has driven Alphabet 15% higher and Nvidia 12% lower.
Worries about the AI trade that buffeted markets recently have weighed particularly heavily on Nvidia, a bellwether of investors' enthusiasm for big tech companies.
At the same time, Alphabet has defied the trend, with investors rewarding the company for both its AI advances and its strong core advertising and search businesses.
Alphabet shares climbed as high as 3.2% in early trading after The Information reported the talks with Meta about using Google chips to run its data centers.
Alphabet last year increased production of semiconductors, an effort that potentially reduces reliance on outside vendors.
Tuesday's news hit a sensitive spot for investors already uneasy about circular financing, runaway spending and growing competition in AI. A tech giant like Google pushing into Nvidia's territory "tapped into a fear that was already there," said Dan Morgan, a senior portfolio manager at Synovus Trust. "Google does have pretty big muscles," he said. "They're not some little guy on the fence."
The potential deal adds to a string of recent events that have lifted Alphabet shares to records, including a court victory that quelled fears of a government-imposed breakup, an investment from Warren Buffett's Berkshire Hathaway and a positive reception to its new Gemini 3 model.
Nvidia, in turn, was among Tuesday's biggest decliners, along with some other AI-related stocks. Advanced Micro Devices lost about 4%. Super Micro Computer fell 2.5%. Oracle declined 1.6%.
Investors plowed money into almost everything else.
Eight of the S&P 500's 11 sectors advanced, led by a 2.2% gain in healthcare stocks. The Dow Jones Industrial Average rose 664 points, or 1.4%, to notch its best day since August. Merck rose 5.2%. Home Depot added 4.3%.
The S&P 500 rose 0.9%, while the tech-heavy Nasdaq trailed other indexes, moving just 0.7% higher.
More broadly, investor optimism that the Federal Reserve will cut interest rates next month, a potential peace deal in Ukraine and easing tariffs have boosted stocks, said Gorr Sahakian, chief investment officer of the Hovnanian family office.
"It seems like the Trump administration is trying to do whatever they can to handle prices," he said. "There's some encouragement there but we'll see if it works."
But trouble in the AI trade remains at the forefront of investors' concerns. Nvidia is still up 32% this year, but shares have borne the brunt of the recent fears that the wave of spending on AI infrastructure won't translate into profits in coming years.
Doubters include Michael Burry, the investor profiled in Michael Lewis's "The Big Short," who made a fortune betting against subprime mortgages nearly two decades ago and who disclosed a new bet against Nvidia in the third quarter. Burry also started writing about parallels between today's AI frenzy and the excesses of the dot-com bubble on social media and in a new Substack newsletter.
In an unusual move, Nvidia responded to Burry's and others' criticisms of the company in a seven-page document circulated among stock analysts over the weekend, according to analysts and a copy of the report viewed by The Wall Street Journal. The most extreme of these critiques compared the company's business practices to Enron, WorldCom and Lucent Technologies.
"Nvidia does not resemble historical accounting frauds because Nvidia's underlying business is economically sound, our reporting is complete and transparent, and we care about our reputation for integrity," the company wrote in the report.
If Nvidia was trying to allay investor concerns, the move backfired, said Gil Luria, an analyst at D.A. Davidson. "The memo itself makes Nvidia seem defensive, and not sharing it publicly has made it appear even worse. We agree with many of the answers they have provided, but a company this big does not need to address every question that is raised between quarterly reports," Luria said.
Meanwhile, several retailers reported earnings that beat Wall Street's expectations. The S&P Retail Select Index gained 4.6% Tuesday after electronics seller Best Buy reported better-than-expected earnings ahead of Black Friday. Kohl's also posted a surprise profit and Dick's Sporting Goods boosted its outlook.
Still, less than a quarter of consumers plan to spend more on holiday shopping than they did last year, according to a report by JD Power. "The middle of the income distribution remains very uncertain as we approach the holiday season," said Eric Teal, chief investment officer for Comerica Wealth Management.” [1]
1. AI Trade Splinters As Google Takes On Nvidia --- As Alphabet rises and the chip giant falls, Dow gains more than 600 points. Moise, Imani; Rudegeair, Peter; Whelan, Robbie. Wall Street Journal, Eastern edition; New York, N.Y.. 26 Nov 2025: A1.
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