China’s Moonshot AI Adds to Chip Investors’ Worries
Friday’s selloff capped a brutal week for what were once the market’s favorite stocks
By Vicky Ge Huang
and Tina Li, The Wall Street Journal, Updated July 17, 2026
The surprise release of a breakthrough artificial-intelligence model from China intensified a selloff in chip stocks on Friday, fueling concerns about competition in AI and massive corporate spending that underpins its build-out. …
The latest trigger was China’s Moonshot AI, which unveiled its Kimi K3 large language model on Friday. The Beijing-based startup claims that the model outperforms some cutting-edge U.S. systems, stoking what some analysts called “DeepSeek 2.0 concerns”—a nod to the rival Chinese AI startup that upended global markets early last year…
As open models begin to rival those of top AI startups producing proprietary systems, many U.S. companies are turning to cheaper options to rein in AI costs. Nvidia, France’s Mistral AI and other U.S. and European companies have also started developing open-weight models…Internally, Merge has saved up to 95% on certain AI costs by using a proprietary routing tool that steers tasks to open-source models…
“Whether it’s retail investors or institutions, we’ve gotten extended pretty significantly in the momentum-oriented technology space,” Hackett said. “This somewhat unhealthy combination of record leverage ETFs, record margin usage, and record call option buying from retail investors. That was all concentrated in that momentum tech space, and we are just seeing that group moving on.”… [end quote]
Don’t-cha love jargon? Especially when it describes a bubble popping?
Translated into English:
Everyone - retail and institutional investors - borrowed a huge amount of money out of greed to follow the stock prices up, inflating the bubble at the same time. Now they realize - OOPS! - maybe it’s a momentum-driven bubble and they should sell and “move on.”
What has happened to past bubbles when the momentum investors “moved on”? Hint: you can find the answer in the book, “Manias, Panics and Crashes.”
Does it matter that today is Friday?
Brokers and clearinghouses calculate risk and margin requirements based on closing prices. A brutal Friday close means that over the weekend, automated systems will calculate that thousands of retail and institutional accounts no longer have enough collateral to back their borrowed money. This sets up “Margin Call Monday.” Investors will spend their weekends receiving automated alerts telling them to either inject massive amounts of cash by Monday morning or face forced, automatic liquidation of their stocks.
Wendy