Chip Rout Deepens After China's Surprise AI Breakthrough | Bloomberg Brief 7/17/2026

Global Markets Brace for AI Investment Concerns [00:17]

• Concerns over AI investments are causing a global chipmaker selloff.
• President Trump accused China of election interference, which China denies, adding to escalation fears.
• Tensions between the US and Iran are growing after a sixth day of strikes.
• The MSCI Asia index is down about 3%, heading for its lowest in two months due to AI spending worries.
• Taiwanese stocks are in correction territory, down 10% from their June peak, partly due to TSMC's uninspiring earnings.

  "Concerns continue to rise around the AI spending."

Asian Markets Hit by AI Competition and Valuations [00:41]

• Asia is a catalyst for a tech selloff, with China's AI startup Moonshot posing a threat.
• Investors are considering cheaper Chinese AI options, impacting global AI trade.
• Japanese Nikkei 225 is in technical territory, with Kioxia shares down 16% in the past month.
• Kioxia was Japan's most valuable company last month, highlighting the rapid sentiment shift.
• Japanese yen strengthened slightly after the Prime Minister mentioned pension funds investing in domestic assets.

  "This is coming as investors um think that this uh Chinese product can actually uh turn investors to choose um more uh cheaper options versus what is already available."

European Markets Experience Risk-Off Sentiment [02:24]

• Europe is experiencing a classic risk-off day, with the Stocks Europe 600 down 0.8%.
• Technology shares are dragging down the market, while defensive sectors like utilities are in the green.
• The FTSE 100 is down less, due to a higher proportion of value and defensive stocks.
• Bond yields are down, reflecting equity weakness.
• The pound has strengthened despite political instability, potentially due to investors covering shorts and viewing it as underowned.

  "It's a classic riskoff day in Europe today..."

US Markets React to Global Selloff and Earnings [04:03]

• US futures are pointed lower, particularly the NASDAQ 100, continuing the week's selloff.
• TSMC's earnings, despite being good, did not prevent the selloff.
• China's announcement and President Xi Jinping's speech on AI are not helping US market moods.
• Netflix disappointed investors with its pre-market stock decline.
• The 2-year yield is down a couple of basis points, below 4.12%, while the 30-year yield remains elevated at 5.07%.

  "The China announcement and the speech from President Xiinping about how China is all in on AI isn't going to help moods here today in the United States."

Tech Sector Woes: Intel, Netflix, Intuitive Surgical [05:19]

• The tech selloff from Asia and Europe is spilling over into the US, affecting big names.
• Intel is down more than 5% as investors question high tech valuations and AI investment returns.
• Netflix shares are falling significantly after its third-quarter forecast disappointed, struggling to boost engagement.
• Intuitive Surgical is down over 11% due to slowed growth for its surgical robots, impacted by GRP1 uptake and ACA subsidy changes.
• Investors are questioning the sustainability of AI spending following the breakthrough of a Chinese open-source model.

  "Investors are really questioning uh this really super high valuations in that tech sector and questioning whether those uh investments into AI can actually deliver those lucrative returns."

China's AI Ambitions and US Market Impact [06:34]

• Chinese AI startup Moonshot's breakthrough is sinking AI and semiconductor stocks.
• Moonshot's Kimmy K3 model deepens worries that US companies might use Chinese models more and invest less.
• Companies are increasingly sensitive to the cost of using AI models.
• Geopolitical tensions may pressure US companies not to use Chinese models, but it will pressure US model developers to lower costs.
• President Xi Jinping's statement on China being "all in on AI" and expanding influence globally is a warning sign for US companies.

  "We're all in on AI and we want it to be open."

Google Gemini Delay and AI Race Dynamics [08:53]

• The Google Gemini delay is not seen as too serious but highlights the difficulty in achieving significant incremental gains in AI models.
• US government scrutiny on AI model availability is increasing.
• Google has more checks and balances in software development, needing to re-evaluate them to remain competitive.
• Google is expected to release a competitive product that keeps them in the mix with OpenAI and Anthropic.
• Google has performed better than anticipated in the AI race, contrary to earlier predictions of market share erosion.

  "It kind of seems to me that, you know, Google's kind of got a lot more checks and balances in place around how it develops software compared to some of its new arrivals."

Other Top Stories: Trump, Burberry, SpaceX [10:07]

• President Trump accused China of interfering in the 2020 US elections, claiming data theft; China denies allegations.
• US intelligence agencies have previously debunked these allegations.
• Burberry sales grew for the first time in three years, with a 5% rise in same-store sales.
• SpaceX aborted its Starship rocket mission due to engine failure and plans to launch again soon.

  "President Trump accusing China of interfering in the 2020 US elections."

Saab's Strong Profits and Defense Spending [11:25]

• Saab shares rose after posting second-quarter profits that beat estimates.
• A $5 billion contract for radar detection systems was generated from the NATO summit.
• Increased European defense spending and greater coordination of procurement are both important.
• Europe needs to collaborate more to create scale, but countries are stepping up to handle their own security.
• Saab aims to increase Global Eye production from two to four-to-six aircraft per year by 2030, requiring investment and establishing hubs in Canada and potentially Europe.

  "It's really important that Europe gets together and do more collaborations to create scale in Europe."

Saab's Gripen Production and Fighter Jet Collaborations [15:01]

• Saab has finalized a Ukraine order for 16 Gripens and is doubling capacity to produce 25-30 per year.
• Potential collaboration exists if Canada selects the Gripen, creating a hub.
• Ukrainian industry will be involved in production, with plans for future batches up to 150 aircraft.
• There have been no specific talks or agreements regarding a sixth-generation fighter with Germany or Airbus, but Sweden has its own FCAS program.
• Saab's doors are open to collaborations if aligned with security policy, air force views, and industry logic.

  "So we're doubling the capacity more or less as we speak and that needs to be done in a very short time frame."

Saab's Expansion and Margin Growth [17:14]

• Saab is expanding geographically, creating scale in operating expenses while increasing R&D spending.
• Having a presence in multiple countries and hubs with other nations makes sense for Saab.
• As Sweden's largest engineering company employing 3,000 people annually, expansion outside Sweden is necessary for growth.
• Geographical expansion is expected to have a positive effect on margins going forward.

  "We need to expand outside Sweden to grow the company and I I still think that will also have a positive effect on the margins going forward."

Small Businesses Struggle with Tariff Refunds [18:39]

• Small businesses are facing difficulties in obtaining refunds for President Trump's tariffs.
• Refunds are a complex process, requiring vendors to wait for shipping companies to issue refunds.
• Tariffs have slowed the pace of innovation due to component unpredictability, and are not effectively moving supply chains as intended.
• The tariffs are not high enough to significantly alter business behaviors.
• Around $166 billion in tariff revenue was collected from over 300,000 businesses, with about $71 billion refunded so far.

  "It's just really a big mess all the way around."

Impact of Tariffs on Small Businesses [20:51]

• Small businesses face a tough environment with contracted markets and frequent price changes.
• Some importers changed prices four times due to tariffs, creating an unsettling period.
• Businesses are seeking stability in the market.
• The tariffs did not achieve their intended effect of moving the supply chain due to insufficient cost.

  "It's it's been a a really unsettling time and I think that's what they're looking for is is just some stability."

Inflation Concerns and Fed Policy Outlook [24:29]

• The selloff in chips and potential reescalation of the Iran war are risk factors that could derail economic conditions.
• Inflation numbers are expected to moderate through the second half of the year, allowing the Fed to stay on hold and potentially cut rates.
• Ongoing concern exists around AI spending and potential escalation in the Strait of Hormuz.
• AI represents a boost in productivity that should be disinflationary over time, but cost pressures are happening now.
• Earnings season will be important to see if companies pull back on spending, though the base case is continued commitment to AI investment.

  "There is going to be ongoing concern around uh AI spending and there is going to be I think rightly concern if the straighter form does not open as normal..."

Earning Season Performance and Market Positioning [27:07]

• The S&P 500 has been negative in July, which is unusual as July is typically a strong month.
• Morgan Stanley remains fundamentally positive, expecting strong earnings growth and a solid global economy.
• The Fed is not expected to be as hawkish as markets anticipate.
• Analysts are optimistic about AI spending supporting earnings growth, despite market volatility driven by extreme positioning.
• Positioning measures have started to correct significantly, which could indicate a wash-out of speculative positioning.

  "We do remain at Morgan Stanley fundamentally positive. I mean, we do think that you're continuing to see strong earnings growth."

Inflation Uncertainty and Market Expectations [28:34]

• There is enormous uncertainty about the sources of inflation in the economy, despite one good CPI print.
• Inflation has been higher than desired for the Fed over the past five to six years.
• The Fed committee is worried about high inflation and has been sounding more hawkish.
• Market-implied inflation numbers (break-evens) show a significant drop, suggesting more benign 1-to-2-year inflation outlook.
• The yield curve has flattened and inverted recently, which has historically been bad for fixed income and bond flows.

  "Yeah, I think there is an enormous amount of uncertainty and again we we have had you know one good print but prior to that most of the prints this year have been too high."

Yield Curve Dynamics and Fed Hike Possibility [30:35]

• The flattening and inversion of the yield curve is a negative sign, potentially threatening the credit market.
• A steeper yield curve is more consistent with economic confidence and strength, and is good for demand from institutional investors.
• The market is assigning well over a 50% chance that the Fed will raise rates this year.
• A Fed hike could lead to questions about the next hike and extrapolation risk.
• Morgan Stanley's base case is that the Fed stays on hold this year, but acknowledges the realistic probability of a hike.

  "The market is still pretty confident that the Fed will raise rates and and so again, I think this is something that, you know, we we need to take seriously."

Other Top Stories: Trump Media, Taco Bell Outbreak, NYC Mayor's Salary [32:24]

• Trump Media plans to launch a data feed for trading firms, merging political and business interests.
• US regulators traced a psychospora outbreak to shredded lettuce at Taco Bell.
• New York City Mayor Eric Adams will forego an 18% pay raise.

  "Trump Media will launch a data feed meant for organizations such as highfrequency and algorithmic trading firms that need information quickly."

Trump's Election Interference Claims Against China [33:27]

• President Trump accused China of the largest compromise of election data in history, acquiring 220 million US voter files.
• These allegations have been debunked by US intelligence agencies.
• The accusations are seen as Trump focusing on his domestic audience and laying groundwork for potential election challenges.
• Democrats believe Trump is preparing to claim the election is fraudulent if it goes against him.
• The timing is considered strange given Trump's prior friendly remarks towards Xi Jinping and an upcoming September visit.

  "Over a period of years, starting during the 2020 election cycle, the People's Republic of China carried out what is believed to be the largest compromise of election data in history..."

US-Iran Tensions Escalate [35:51]

• Voters are concerned about the cost of living and inflation, not primarily election interference claims.
• The US hit six road bridges in southern Iran overnight, escalating tensions.
• Ship movements indicate the current blockade is wider than previous ones.
• President Trump has tried military conflict and negotiations without desired results, and appears to be preparing to escalate.
• There is concern about economic impacts, especially close to election time, leaving Trump with few desirable options.

  "It's getting a little messier, isn't it, Jonathan?"

Chinese AI Model's Impact on Chip Stocks and Hyperscalers [37:22]

• Chinese AI startup Moonshot's Kimmy K3 model ignites fears of US companies using Chinese models more and investing less.
• The Kioxia stock decline is a significant indicator of the chip sector's struggles.
• Moonshot's model is as powerful as Anthropic's Opus 4.8, launched just six weeks prior, demonstrating rapid catch-up.
• This rapid progress raises questions about the return on investment for hyperscalers' massive chip investments.
• Hyperscalers' cost of debt is rising, and free cash flow is declining, raising concerns for the markets.

  "This is going to raise those questions again about whether these massive tech companies are going to see good returns on investment capital from these chip investments."

World Cup Final: Adidas vs. Nike Sponsorship Battle [39:26]

• The World Cup final features Spain against Argentina, with a significant sponsorship battle between Adidas and Nike.
• Adidas had an edge entering the tournament, boosted by its Samba sneaker success, while Nike was in a corporate reset.
• Adidas launched jerseys and products ahead of Nike and had a splashy brand campaign featuring celebrities.
• Both semi-finals featured two Adidas teams, with Adidas ultimately having both teams in the final.
• Adidas is in a strong position with Argentina (Messi) and potentially Spain (19-year-old Lamine Yamal) as favorable scenarios.

  "This is really like the the high stakes competition particularly between Adidas and Nike every four years now."

Trading Day Outlook: Economic Data and AI Trade [41:55]

• Key economic data for the trading day includes housing starts, building permits, and Yum! Sentiment.
• Regional bank earnings from Truist and Fifth are expected before the bell.
• The AI trade is dominating markets, driven by announcements like China's Moonshot Kimmy K3 model.
• Taiwan entered a technical correction, and Japan's Kioxia was down 16%, losing 50% of its market value.
• NASDAQ 100 futures are down almost 2%, and the broader stock index is down over 3%.

  "It's the AI trade that's really taking over."