At its core AI is a sovereign imperative

The last two-three weeks has seen a significant pullback in AI stocks and the tech heavy Nasdaq Composite index, which has lost 7% from its all time high. I do believe that this correction offers an opportunity to invest in good, solid AI stocks because of the cold war between the US and China for AI dominance. This is a small blip in a decades long journey.

Artificial intelligence is slowly becoming a sovereign endeavor and competition between the US and China, and on that stage corporate giants, Nvidia, OpenAI, and Alphabet are becoming mere players. Important and indispensable ones, of course, but ultimately under the control of their governments. 

Why has this shifted to a national imperative? The escalating U.S.- China AI race is widely compared to the Cold War, both for its scale and for its potential impact on society, economic growth, and geopolitics. Both nations’ leaders and industries are motivated by a combination of aspirations for progress and fears of falling behind or losing global influence.​ Economic, social, and political disruption is expected as AI permeates critical sectors — with both the U.S. and China recognizing AI’s military and civil transformative power.​

The U.S. dominates the AI landscape, with companies like Nvidia, Microsoft, OpenAI and Google leading the field.​ But during the last three years, when AI evolved from an essay writing curiosity to taking over a junior coder's job, the Chinese started catching up. Chinese tech firms initially lagged behind in generative AI in early 2024, heavily relying on open-source models like Meta’s Llama due to U.S. export restrictions on cutting-edge AI chips.​ But, to make up ground, China's government launched a rapid and coordinated campaign, relaxing AI regulations, increasing funding, and accelerating infrastructure investments to catch up.​ By early 2025, Chinese startup DeepSeek released a powerful AI model, which drew global industry attention and recognition as an amazing leap forward.​

US AI strengths - Private ecosystem

• The U.S. continues to lead in advanced semiconductors chips, such as Nvidia’s Blackwell systems, supported by its massive private investment ecosystem led by Nvidia, AMD, Broadcom, Apple and so on.
• AI Foundational models, dominated by OpenAI, Anthropic, Meta and Grok, to name a few.
• Gigantic hyperscalers and cloud service providers such as Amazon, Microsoft, Alphabet.

China’s AI strengths - State support

• President Xi’s (AI Plus blueprint) signaling intensifying national focus on AI across all strategic dimensions.​
• An abundance of engineers using software strengths and innovation as shown by DeepSeek, lower costs, and centralized state support.​
• Coordinated, cohesive, long-term strategic national initiatives, building large-scale computing clusters (including “national cloud” data centers) and investing heavily in AI power infrastructure.​
• China added 429 gigawatts of new generation capacity in 2024 alone, far more than the US.
• Fast tracking from Chinese state and local governments.

US AI Weaknesses

• A lack of coordinated support for power and infrastructure.
• The high cost of debt in an already indebted nation.
• High interest rates in an inflationary environment.
• Compliance and regulatory hurdles at state and local levels.
• Power shortages and delays.
• The US is trying to mitigate this with the Trump administration’s AI Action Plan.

Chinese weaknesses

• China’s main weakness is its ongoing reliance on the U.S.-designed advanced chips.
• New developments, like “chip swarms” (bundling many local chips to match U.S. systems), and major industrial policy moves by companies like Huawei, are mitigating this major weakness. ​

Spending on AI

According to the Wall Street Journal, market analysts estimate Chinese tech firms will spend $361Bn on AI by 2027, and other sources indicate a total between $900Bn to $1.4Trn by 2030.The US by contrast is likely to spend closer to $3Trn by that time.

AI remains an excellent sector to invest in

Based on the cold war imperative, I remain confident that the artificial intelligence industry will continue to grow. Given the leadership, innovation, ubiquity and indispensability of the private sector in the US, leading companies like Nvidia, Alphabet, Amazon and Broadcom, among several others  will remain good investments for the foreseeable future with the usual periods of indigestion, and market corrections. Besides, AI progress in defense, cybersecurity, government and other state imperatives such as national security and intelligence, should ensure that neither government is likely to slow down.