AI Arms Race: The New Space Race?

Background

Shortly after his inauguration, President Donald Trump announced a USD $500 billion joint venture called "Stargate," comprising Oracle (ORCL.US), SoftBank Group (ADR) (SFTBY.US), and OpenAI. The venture will focus on advancing and building the next era of AI infrastructure. The three companies will commit USD $100 billion initially and raise additional funds over the next four years to meet the USD $500 billion target. This initiative aims to cement both Trump's presidential legacy and ensure U.S. dominance in the AI and tech space for years to come.

However, a quiet storm was already brewing as a challenger from China quickly captured media headlines. DeepSeek, a startup founded in 2023, launched its R1 model, an open-source AI model that demonstrated capabilities on par with leading American AI models while being developed at a fraction of the cost. This led to DeepSeek becoming the most downloaded app on app stores and caused chip leader NVIDIA (NVDA.US) to drop by nearly 17% in just one trading session. Other firms along the AI supply chain, including Broadcom (AVGO.US) and Micron Technology (MU.US), also fell dramatically.

These developments led to significant market reactions, with the E-mini S&P 500 Futures(MAR5) (ESmain.US) and E-mini NASDAQ 100 Futures(MAR5) (NQmain.US) declining by more than 3% and 5% within the day, respectively.

Similarities with the Space Race During the Cold War Era

"History does not repeat itself, but it often rhymes." This saying proves particularly relevant as the AI arms race between the U.S. and China bears striking similarities to the Cold War rivalry between the U.S. and the Soviet Union, particularly the space race. The AI race has become the next battleground for global influence in the 21st century.

What Are The Implications?

While the space race during the Cold War era brought uncertainty and fear, it also drove significant advancements in healthcare, technology, defense, and numerous other industries. The U.S. market experienced substantial growth during this period, commonly known as the "Golden Age of Capitalism." Only two major corrections were noted: stagflation in the 1970s and the "Black Monday" crash in the 1980s.

As the AI race accelerates, we expect to see varied reactions across different markets, influenced by each country's economic structure, technological infrastructure, and policy priorities. We anticipate fierce competition between the U.S. and China, which will lead innovation in AI and drive new developments. These two powerhouses are likely to set global standards for AI, spurring the growth of AI-driven industries worldwide.

Asian markets face mixed opportunities and may ultimately need to choose sides. Hong Kong's tech industry stands to benefit from China's significant strides in AI, with Hong Kong authorities pledging to support DeepSeek. Japan must continue investing in AI to maintain its competitive edge against global competitors while potentially pivoting to play a larger role within the AI supply chain and ecosystem. Singapore will need to leverage its robust digital infrastructure and position itself as tech-friendly while continually evolving with the rapidly changing AI landscape.

Additionally, economies across the globe must navigate an inflationary environment while managing the complexities of the Trump administration's policies.

Immediate Impact on NVIDIA

Regarding the immediate implications for market leader NVIDIA, we expect the market to take a "wait and see" approach, particularly given this week's U.S. Federal Reserve interest rate decision. More details about DeepSeek's capabilities need to be understood. Additionally, given NVIDIA's substantial market leadership, displacing them from their position will not be easy.

Technical Analysis: NVDA US (Weekly Chart) - [NEUTRAL]

NVIDIA is expected to consolidate between the 131.75 resistance and 115.75 support levels. A candlestick close above 131.75 resistance would indicate a 'fake out' and suggest price reintegration above the long-term ascending trendline support. Technical indicators are currently mixed, with price holding between both short and long-term EMAs and MACD showing flat momentum with no clear direction.

Alternative scenario: A daily candlestick close below 115.75 support could trigger a deeper sell-off, potentially pushing the price toward the next support level at 100.90.

Investors should exercise caution rather than blindly buying NVIDIA merely because its price has fallen significantly. Instead, consider building positions at key support levels. In situations like these, being the first mover may not necessarily be advantageous. As the saying goes, "The early bird gets the worm, but the second mouse gets the cheese!"

Trade safe, stay safe.

Prepared by:

Moomoo Singapore

Isaac Lim CMT, CFTe

Chief Market Strategist

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