Is China About To Wreck U.S. Tech?

Is China Planning To Wreck U.S. Tech? 

That's what Balaji Srinivasan argues in the post below. First, for those unfamiliar with him, here's why his opinion is worth considering here. In a nutshell, it’s because he combines deep technical expertise with a strong track record of predicting where technology is headed.

Srinivasan is a tech entrepreneur, investor, and futurist known for his influential ideas at the intersection of technology, society, and decentralization. He was formerly the CTO of Coinbase and a General Partner at Andreessen Horowitz, one of Silicon Valley’s top venture capital firms. With a background in electrical engineering and a Ph.D. from Stanford, he’s been a vocal thought leader on trends like blockchain, AI, and the future of governance. 

What prompted Balaji's post, was this question on X, about why China was essentially giving away its new AI models.

Below is Balaji's response. Following that, we'll consider a couple of its investing implications. 

AI Overproduction

China seeks to commoditize their complements. So, over the following months, I expect a complete blitz of Chinese open-source AI models for everything from computer vision to robotics to image generation.

Why? I’m just inferring this from public statements, but their apparent goal is to take the profit out of AI software since they make money on AI-enabled hardware. Basically, they want to do to US tech (the last stronghold) what they already did to US manufacturing. Namely: copy it, optimize it, scale it, then wreck the Western original with low prices.

I don’t know if they’ll succeed. But here’s the logic:

1. First, China noticed that DeepSeek’s release temporarily knocked ~$1T off US tech market caps.
2. Second, China’s core competency is exporting physical widgets, more than it is software.
3. Third, China’s other core competency is exporting things at such massive scale that all foreign producers are bankrupted and they win the market. See what they’re doing to German and Japanese cars, for example.
4. Fourth, China is well aware that it lacks global prestige as it’s historically been a copycat. With DeepSeek, becoming #1 in AI is now something they actually consider possibly achievable, and a matter of national pride.
5. Fifth, DeepSeek has gone viral in China and its open source nature means that everyone can rapidly integrate it, down to the level of local officials and obscure companies. And they are doing so, and posting the results for praise on WeChat.
6. Finally, while DeepSeek was obscure before recent events, it’s now a household name, and the founder (Liang Wengfeng) has met both with Xi but also the #2 in China, Li Qiang. They likely have unlimited resources now.

So, if you put all that together, China thinks it has an opportunity to hit US tech companies, boost its prestige, help its internal economy, and take the margins out of AI software globally (at least at the model level).

They will instead make their money by selling inexpensive AI-enabled hardware of increasing quality, from smart homes and self-driving cars to consumer drones and robot dogs.

Basically, China is trying to do to AI what they always do: study, copy, optimize, and then bankrupt everyone with low prices and enormous scale.

I don’t know if they’ll succeed at the app layer. But it could be hard for closed-source AI model developers to recoup the high fixed costs associated with training state-of-the-art models when great open source models are available.

Last, I agree it’s surprising that the country of the Great Firewall is suddenly the country of open source AI. But it is consistent in a different way, which is that China is just focused on doing whatever it takes to win — even to the point of copying partially-abandoned Western values like open source, which seemed like the hardest thing to adopt.

On that point: they did build censorship into the released DeepSeek AI models, but in a manner that’s easily circumvented outside China. So, you might conclude they don’t really care what non-Chinese people are saying outside China in other languages, so long as this doesn’t “interfere with China’s internal affairs.”

Anyway —this is an area I’ve been watching, and my reluctant conclusion is that China is getting better at software faster than the West is getting better at hardware.

Investment Implications 

Buy China

China essentially giving away AI may be bad for AI software companies, but it should be good for companies that use AI, including Chinese companies. Consider adding some China exposure, if you don't have much already. Two of our system's recent top ten names are Chinese ADRs, and we opened options trades on both of them yesterday. 

Hedge U.S. Tech

Silicon Valley is no longer untouchable. If you own Magnificent Seven stocks, own them with that in mind, and consider hedging. 

You can download the Portfolio Armor optimal hedging app by aiming your iPhone camera at the QR code below (or by tapping here, if you're reading this on your phone). Our app can help you find the least expensive hedges given your risk tolerance and time frame.

Sell Nvidia 

The U.S. company most threatened by China's AI overproduction is likely to be Nvidia. If you're an enterprising investor, you might consider betting against it, using the long term trade we posted below. If Nvidia hits $130 on a rally, that might be a good time for an entry. 

Look For American Companies Poised To Profit

The American beneficiaries of cheap Chinese AI are likely ones that will be able to automate away expensive labor costs. We will be keeping an eye out for opportunities on that front. If you'd like a heads up when we find one, feel free to subscribe to our trading Substack/occasional email list below. 

If you'd like to stay in touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).