Should Nvidia Worry About the Rise of China’s New Optical AI Chips?

It’s been over a year since DeepSeek caused a bit of a panic across the AI stocks, as its distillation techniques caused many to question whether the frontier innovators needed all that hardware firepower. As it turned out, DeepSeek R1 wasn’t the disruptor that was meant to derail the AI trade for good.

Fast forward over a year, and AI demand is hot, and the need for infrastructure has caused big tech to spend colossal sums. With a memory chip shortage and a potential supercycle brewing in AI infrastructure, it feels like all is forgotten about DeepSeek and the threat it posed to the American AI innovators. Of course, distillation, the technique DeepSeek leveraged, is a crafty technique when training a model.

But, as it turned out, it didn’t put a top to the “scaling” for the firms at the very frontier of AI. Of course, just because DeepSeek may have been overblown in the heat of the moment doesn’t mean there can’t be another DeepSeek as the field of AI matures and new techniques are discovered en route to more efficient techniques.

If a real breakthrough can be achieved that allows far cheaper training without compromising too much on power, perhaps growth investors should be ready for another version of DeepSeek at some point in the future, with a similar or perhaps more severe shock to the AI stocks. 

In the meantime, scaling up and spending heavily seem to be the way to go for many firms leading the AI race. Though the costs of scaling could wind down over time, thanks in part to massive year-over-year performance gains in the latest GPUs or the big efficiency gains offered by custom ASICs (application-specific integrated circuits), the memory chip boom could make things considerably pricier over the year ahead.

Could more disruptive AI innovators from China arise?

In any case, Nvidia (NASDAQ:NVDA | NVDA Price Prediction) CEO Jensen Huang is absolutely right when he warns about the AI capabilities of China. Though Huang has since backtracked on his initial comments that “we’re losing the AI race to China,” I do think that China remains a number-one source of potential AI shockers. Whether it’s DeepSeek or another firm, there’s disruptive potential that could upend the AI trade or even cause a serious correction across some of the chip names.

With China’s LightGen working on an optical chip that’s made headlines for running “100x faster” than the likes of an Nvidia A100 chip, there’s definitely a lot for Nvidia shareholders to ponder. Of course, the headline might be shocking until one discovers that the performance only applies under very specific circumstances. Additionally, photonic chips remain a nascent technology that, like quantum computing, faces challenges en route to mainstream adoption.

Does that mean investors should dismiss the emerging technology and its disruptive potential over the long run? Most definitely not. Photonic chips might not be on the cusp of disrupting traditional chips, but the field is certainly worth keeping tabs on, especially if several breakthroughs allow the technology to eventually chip away at the GPU lead. 

The “100x” headline feels overdone—Nvidia investors need not worry

Even if photonic chips emerge in the 2030s, Nvidia seems to have ample time to pivot. Whether that’s creating a hybrid solution or something else, I do think that there’s no dethroning the GPU juggernaut in the earlier innings of what could be a multi-year AI bull run.

So, in short, photonic chips, at least in their current state, remain far from a DeepSeek-scale disruptor. Though, optical chips (and quantum computing) are incredibly interesting, especially for investors looking beyond the next decade. Either way, I don’t think Nvidia shareholders have anything to worry about with regards to LightGen, at least in my opinion.