Table of Contents
Global markets faced a turbulent session Friday characterized by geopolitical confusion and aggressive capital allocation in the artificial intelligence sector. While the Pentagon briefly listed—and then inexplicably withdrew—major Chinese technology firms from a blacklist, AI rival Anthropic secured a historic funding round that propelled its valuation to $380 billion, signaling that the industry’s capital arms race is far from over.
Key Points
- Pentagon Reversal: The Department of Defense added Alibaba, Baidu, and BYD to a list of entities aiding the Chinese military, only to retract the publication shortly after, causing immediate stock volatility.
- Anthropic’s Valuation Surge: The AI firm finalized a $30 billion raise, doubling its valuation to $380 billion as investors increasingly "double dip" into rival AI infrastructure.
- The "AI Scare Trade": Logistics and software stocks faced sell-offs as investors reacted to fears of AI disruption, sparked by a minor startup’s breakthrough.
- Earnings Resilience: Despite broader market jitters, Rivian, Applied Materials, and Twilio posted strong gains driven by future product roadmaps and infrastructure demand.
Geopolitic Confusion: The Pentagon List Reversal
Markets were thrown into disarray early Friday when the U.S. Department of Defense published, and subsequently deleted, an updated version of the "1260H" list. The document identifies entities operating in the United States that are allegedly "communist Chinese military companies." The brief publication included major technology heavyweights Alibaba, Baidu, and EV manufacturer BYD.
The retraction occurred without official explanation, leaving investors speculating about the administrative or diplomatic reasons behind the error. However, the market reaction was immediate. U.S.-listed shares of the implicated Chinese firms dropped sharply the moment the list circulated.
The incident highlights the extreme sensitivity of the market to U.S.-China relations, particularly regarding artificial intelligence and semiconductor technology. This tension is further complicated by escalating corporate accusations. OpenAI has reportedly warned U.S. lawmakers that Chinese competitor DeepSeek is utilizing "improper methods" to advance its models.
According to reports discussed on Bloomberg Tech, OpenAI’s memo to Congress alleges that DeepSeek is engaging in "distillation"—effectively copying results from frontier U.S. models to train their own systems, specifically citing the R1 breakthrough. OpenAI has cited this as a national security risk, noting that DeepSeek filters out sensitive geopolitical queries.
AI Capital Wars: Anthropic Hits $380 Billion
In the private markets, the appetite for foundational AI models remains voracious. Anthropic has completed a massive capital injection of $30 billion, a figure that shatters previous expectations and doubles the company’s valuation to a staggering $380 billion.
The round indicates a shifting strategy among Silicon Valley venture capitalists. Investors who previously backed only one major player are now "hedging their bets" by funding multiple competitors, a phenomenon described as "double dipping."
Financial metrics for Anthropic justify the aggressive valuation. The company’s annual run rate has surged from $9 billion to $13 billion in a short period. Despite lacking the consumer brand recognition of ChatGPT, Anthropic’s deep penetration into enterprise coding and infrastructure suggests strong, durable revenue growth.
Market Sentiment: The Rise of the "AI Scare Trade"
While AI infrastructure builders soar, sectors perceived as vulnerable to automation are suffering from what analysts are calling the "AI Scare Trade." This trend was exemplified by a sharp sell-off in logistics and legacy software stocks, triggered by a relatively small autonomous startup with a mere $6 million valuation.
The volatility suggests a "sell first, ask questions later" mentality among institutional investors. Traders are increasingly wary of holding equities in industries where AI could rapidly commoditize services.
"We have seen the fear of software disruption from AI trickle across the broader market into sectors you would not think were tied to the AI trade... Investors are asking, 'How can I protect from downside like this?' Even the smallest headline can send stocks off the cliff."
However, industry executives argue that the sell-offs may be premature. Khozema Shipchandler, CEO of Twilio, pushed back against the "SaaS-pocalypse" narrative following his company's earnings beat. Twilio shares held gains as Shipchandler argued that AI would be additive to the workforce rather than a replacement.
"I do not think AI is per se coming for the workforce... Over the next five to seven years, you are going to have a whole slew of college graduates who are AI natives who are going to add so much more intellectual capacity that workforces could grow."
Earnings Movers: Hardware and EVs Buck the Trend
Beyond the software volatility, hardware and manufacturing sectors showed significant resilience, driven by future-looking product cycles.
Semiconductors and Equipment
Applied Materials surged nearly 9% following stellar earnings. As the primary equipment supplier for chipmakers, the company is a direct beneficiary of the data center build-out required to support the AI boom. The results calmed fears that U.S. export controls on China would cripple the semiconductor supply chain, proving that demand for data center infrastructure in the West is sufficient to drive growth.
Electric Vehicles
Rivian shares rallied approximately 24%, driven entirely by optimism surrounding its next-generation "R2" platform. Despite continuing to burn cash—projected to lose $2 billion this year—the market is pricing the stock based on the upcoming launch of its mass-market vehicle. The R2 is positioned as a competitor to the Toyota RAV4, targeting the sub-$70,000 price point to capture broader consumer adoption.
Crypto and Fintech
Coinbase saw shares pop 16%, defying a poor earnings report characterized by low transaction volumes. The movement is attributed to "bottom fishing," with investors betting that the worst of the crypto winter is priced in and that regulatory clarity may improve. Conversely, the asset class remains volatile, with Bitcoin struggling to maintain momentum amid broader tech turbulence.
What’s Next: The Policy Battleground
As capital floods into AI, the industry is increasingly turning its attention to Washington. Taking a page from the cryptocurrency industry's 2024 playbook, major AI backers, including Andreessen Horowitz, are reportedly funneling millions into political action committees (PACs).
The new PAC, "Leading the Future," aims to support congressional candidates who favor a "light touch" regulatory approach to artificial intelligence. By framing AI dominance as essential for U.S. competitiveness against China, the industry hopes to secure a legislative environment that permits continued rapid expansion and infrastructure development.
