China’s AI bubble bursts as STAR50 index wipes out $480 billion in four months
The STAR50 index, Shanghai’s board of homegrown AI and chip leaders, has fallen about 40% from its July high, erasing roughly $480 billion in market value as worries over AI demand and curbs on Chinese exports caught up with stretched valuations. Alphabet shed about $500 billion in a single session on Thursday, Intel sank 28% on Friday and the Nasdaq ended October with its worst monthly slide since March 2025. China’s blue-chip CSI 300 index is down about 20% from its June peak, putting it in bear market territory, and Beijing pumped $19 billion into exchange-traded funds last week, its largest intervention since early 2025. Humanoid robot maker Unitree drew retail orders 8,000 times the shares on offer and surged 600% in its Shanghai debut in August, only to halve since. GPU makers MetaX and Moore Threads, seen as China’s answer to Nvidia, jumped 700% and 400% on their first trading days last year and have also lost half their value since July. Memory chipmaker CXMT became Shanghai’s most heavily weighted stock just three months after listing, and now sits nearly 30% below its August peak. Goldman Sachs estimates AI stocks make up 42% of China’s market value and 57% of turnover across mainland and Hong Kong-listed shares, so when the theme turned, almost every portfolio felt it. The Hang Seng is down more than 12% this year, while the Hang Seng Tech index has lost about 30%. That stings households who moved savings into stocks during a five-year property slump, with roughly 70% of family wealth still tied to real estate. Even after the drop, the STAR50 trades at about 100 times trailing earnings, down from nearly 250 at its peak. The Nasdaq 100 sits closer to 30.
Because washington is moving to bar them from supplying US data centres, optical module suppliers Zhongji Innolight and Eoptolink trade around 60% under their summer highs, partly. Because state-backed funds had invested in firms like Unitree, which he read as official support, chen Wensheng, a small business owner from Hainan, bought in.
“The stock market later evolved into a speculative crazy bull,” Beijing-based fund manager Dong Baozhen told Reuters. “The selloff reflects a repricing of crowded AI trades,” Gary Ng, senior economist for Asia Pacific at Natixis, told CNN, pointing to “weak domestic demand, and the lack of stimulus” as well. Hong Hao, chief investment officer at Lotus Asset Management, told Reuters he expects the rout to stall many tech firms’ plans to list.
China’s artificial intelligence trade, the hottest bet on its stock market this year, has come apart in under four months. The collapse comes as Wall Street goes through its own AI scare. China has already answered that question for itself While investors in New York debate whether the AI bubble is about to burst. The pain goes well beyond tech. “And now we see the bubble bursting. The names hit hardest were the market’s darlings. He and his friends are now sitting on losses. There was no obvious trigger. Traders point to prices that had run too far, tax bills and the threat of overseas bans on Chinese data centre equipment. What made the fall so wide was concentration. Hong Kong has not escaped either. Chinese equities have now fallen for ten straight weeks, a run never seen before. Not everyone is heading for the exit. Goldman Sachs still has Innolight and CXMT on its recommended list, and Wu Qing, chairman of the China Securities Regulatory Commission, has promised to keep markets stable while nudging listed firms toward buybacks. Strict capital controls also limit how far the damage can travel into global markets.
Meta, Alphabet, Oracle, Amazon and Microsoft are set to spend about $800 billion on AI this year, and US investors are already punishing earnings that fall short.
“There’s no exception,” he told Reuters. That leaves the question the selloff started with. Shanghai fund manager Wang Zhuo expects China’s chipmakers to land in the same price war as every other Chinese manufacturer. “All bubbles inevitably burst. You use AI every day. Now get your AI Quotient. Take the AIQ test.