US AI boom faces threat from cheaper Chinese models: Jefferies' Christopher Wood
Cheaper artificial intelligence (AI) models from China could trigger massive capital destruction in the US stock market as investors begin to question the returns on the massive AI investments made by American technology giants, Jefferies' Global Head of Equity Strategy Christopher Wood has warned.
In his latest weekly note, GREED & Fear, Wood said the key risk for markets is not the growth of AI itself but when investors begin to scrutinise whether the enormous capital expenditure on the technology is generating adequate returns.
"The key issue has always been one of timing in the sense of when the market will start to worry about the return on investment (made in AI)," he wrote.
He further noted that AI investment theme continues to favour companies supplying infrastructure and equipment to hyperscalers rather than firms developing AI applications.
Wood also pointed to signs that Chinese large language models (LLMs) are rapidly gaining global traction.
According to data cited in the note, the top Chinese AI models processed 36.39 trillion tokens on the OpenRouter platform in the week ended July 19, up sharply from 4.37 trillion tokens in late April.
In comparison, the leading US AI models processed 7.39 trillion tokens over the same period.
"There is also a growing realisation now that China has become a technological peer to the US in AI, as well as in so many other areas," Wood said.
He cautioned that financial markets have yet to fully price in China's rapid progress in artificial intelligence.
Wood further warned that the AI boom in the US is increasingly being financed through debt rather than internal cash generation.
Wood also reiterated his view that US equities have likely already reached their peak as a share of global stock market capitalisation, adding that investors should closely monitor the relative and absolute performance of hyperscaler stocks.
His comments came as technology shares faced renewed selling pressure globally.
South Korea's Kospi index slumped nearly 11 per cent on Tuesday, with trading temporarily halted during the session, while chipmakers Samsung Electronics and SK Hynix were among the biggest losers amid concerns over the sustainability of the AI-driven rally.
