All-In On US AI Stocks? Don’t Miss The China Trade: Alpine Macro – Invesco China Technology ETF (ARCA:CQQQ), ASML Holding (NASDAQ:ASML)

As the battle for AI supremacy intensifies between the world’s two largest economies, analysts say investors focused solely on U.S. tech stocks risk overlooking a critical hedge hiding in plain sight.

In a recent research report, Henry Wu, chief quantitative strategist at Alpine Macro—a firm owned by Oxford Economics—said investors piling into U.S. AI giants like Nvidia Corp. (NASDAQ:NVDA) are overlooking a growing geopolitical risk and missing a crucial China hedge that could protect their portfolios.

Why Diversifying AI Bets May Be Smarter Than Going All-In On The US

The AI boom may be global, but the risks are not evenly distributed.

According to Wu many U.S.-listed AI names still derive a meaningful chunk of demand—over 15% in Nvidia’s case—from China, even through unofficial or gray-market channels.

But with China accelerating its push for full-stack self-sufficiency and the U.S. tightening export controls, the foundations of that demand are cracking. Wu advises investors to consider geopolitical resilience.

“We recommend a barbell strategy: hold both U.S. and Chinese players when betting on AI,” Wu said, suggesting exchange-traded funds like Invesco China Technology ETF (NYSE:CQQQ) and Invesco QQQ Trust (NYSE:QQQ) as a way to balance this exposure.

China’s Push For AI Sovereignty Is More Than Just a Reaction

China isn’t just retaliating to U.S. sanctions—it’s reshaping its entire tech strategy. After the U.S. approved exports of Nvidia’s weakened H20 chips, China quickly banned them altogether.

The signal? Chinese regulators now view reliance on U.S. tech as a greater threat than short-term underperformance.

Companies like Huawei are at the heart of China’s semiconductor ambition.

Despite being banned from access to U.S. tech, Huawei’s chip design—powered by smuggled parts and domestic talent—is nearing Nvidia-like performance levels.

However, the country still trails global leaders by roughly five years, particularly in lithography, where Chinese players are just now developing domestic deep ultraviolet tools.

Investment Takeaways: Where to Look Now?

Wu outlines three strategies for investors.

1. Favor bottleneck layers: Focus on critical chokepoints in the AI supply chain such as memory, lithography and advanced chip fabrication. Key players include Micron Technology Inc. (NASDAQ:MU), SK Hynix Inc. for memory; ASML Holding NV (NASDAQ:ASML) for lithography; and Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), Semiconductor Manufacturing International Corp. and Huawei Technologies Co. Ltd. for advanced logic. These companies sit upstream, where pricing power and AI-driven demand are most concentrated.
2. Be cautious on end-use AI plays: While generative AI applications are proliferating, much of the profit is likely to remain with infrastructure providers. Building on large language models is relatively low-cost, meaning returns will consolidate around firms providing the computational backbone—not the apps built on top.
3. Hedge with China tech exposure: Despite short-term divergence, U.S. and Chinese tech stocks historically trend higher over time. Holding both adds diversification and helps insulate portfolios from sudden policy shocks or sanctions.

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