Christopher Wood has a proven track record of spotting speculative bubbles. He has named the dot-com boom, the credit bubble in Japan, and the housing bubble in the United States before many of his contemporaries. So when he warned of an “AI capex arms race” at the Fortune Innovation Forum in Kuala Lumpur, Malaysia, on Tuesday, the audience took notice.
Wood, who is now global head of equity strategy at Jefferies Hong Kong, said the arms race began in 2023 when Microsoft invested in OpenAI. He said investors are missing a crucial point: that almost all of the money raised so far goes not to companies that make AI products, but to those selling the infrastructure behind them.
“You want to have what I call AI picks and shovels,” Wood said. It’s companies like Nvidia, which produces semiconductors and builds data centers, that have made the real profits from the AI boom.
“But it’s not entirely clear to me who is going to monetize and make money from all of this capital expenditure,” Wood continued.
This leads to what he sees as an almost inevitable depression in overinvestment – although it is not known when markets will finally lose patience with bloated spending without results.
Wood has already reorganized his own portfolio. He recently sold his Nvidia holdings, not necessarily because he thought the stock had risen, but because its five-fold gain was already within extraordinary expectations.
His interest in artificial intelligence is now focused in China, where he believes companies are approaching the technology more realistically. “You need two things to do AI: computation and power,” he said. “The Chinese are much more advanced in energy than the United States is in mathematics.”
While the United States remains a leader in terms of the power of its advanced chips, semiconductor export controls imposed by Washington since late 2022 may have inadvertently strengthened China’s position. By depriving Chinese companies of American chips, the policy deprived American technology companies of their largest customers and prompted Beijing to accelerate its domestic semiconductor ecosystem.
“(Nvidia CEO Jensen Huang) has made it very clear that Huawei is a much stronger competitor than it was three years ago,” Wood noted, adding that Nvidia’s censored chips had made their way to China anyway through secondary channels, despite US controls. “It’s a massive own goal.”
Huang has repeatedly praised Chinese chipmakers, including Huawei. He described the Chinese technology giant as “one of the largest technology companies in the world.” In April.
China’s AI strategy also diverges from the United States. Instead of pursuing the elusive goal of artificial general intelligence, Chinese companies, driven by successes like DeepSeek, are directing resources toward practical, commercially viable applications, many of which are built on open source models. “They’re not trying to build the perfect MBA,” Wood said. “It’s all about the applications.”
By contrast, US giant tech companies are pouring money into parallel efforts to build proprietary frontier models, a shift that is fundamentally changing their economies. For many years, major technology companies have relied on “asset-light” business models, each in its own field. Now, Wood said, superscalers are competing in the same AI space as they move to “asset-heavy” models.
Other members of the Fortune Innovation Forum echoed Wood’s comments about China’s AI strategy. “China is a little more focused on proliferation, while the US is more focused on perfection,” Chan Yip Pang, executive director of Vertex Ventures SEA and India, said Monday during a discussion on the competition between open source and closed source models.
Why are US tech giants spending so much? Opportunity is one answer. Fear is the other. “They’re terrified of being obstructed,” Wood said. “There’s a lot of fear of fear. That’s what’s driving this arms race.”
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