A SHARP sell-off in Chinese artificial intelligence and semiconductor stocks has wiped out about US$480 billion in market value in less than four months, exposing the risks of inflated valuations and mounting uncertainty over demand for AI technology.
The mainland STAR50 index, which tracks major technology and semiconductor companies, has fallen 40% over the period, while China’s broader blue-chip index has dropped about 20% from its June peak.
The rout threatens to undermine Beijing’s efforts to encourage households to invest in equities to help finance the country’s AI ambitions, after a two-year rally fuelled by expectations of economic stimulus and government support for technology industries.
“There has been a speculative crazy bull,” Reuters cited Beijing-based fund manager Dong Baozhen saying. “And now we see the bubble bursting.”
Unlike the recent pullback in US technology shares, the Chinese sell-off has been particularly severe, with investors reassessing lofty valuations amid concerns about AI demand, potential export restrictions and the possibility of Chinese equipment being barred from overseas data centres.
AI-related stocks account for 42% of China’s market capitalisation and 57% of turnover across mainland-listed A-shares and Hong Kong-listed H-shares, according to Goldman Sachs, leaving a large share of the market exposed to the downturn.
Several once high-flying companies have suffered steep losses. Robot-maker Unitree has lost half its value since beginning trading in August, while chipmakers MetaX Integrated Circuits and Moore Threads Technology, which surged 700% and 400% respectively on their market debuts in 2025, have also halved from their July levels.
Optical components makers Zhongji Innolight and Eoptolink Technology have fallen about 60% from their June and July peaks, partly amid moves by Washington towards restricting their supplies to US data centres.
Despite the sell-off, the STAR50 trades at about 100 times trailing earnings, down from a peak of nearly 250 times, compared with about 30 times for the Nasdaq 100, underscoring concerns that valuations remain stretched.
The market downturn could also make technology companies more reluctant to seek stock market listings and raise fresh capital.
“What’s happening is now going to put a stop for many of the companies trying to get themselves listed,” said Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong.
Some investors, however, view the correction as an opportunity to buy selected companies at more attractive prices, arguing that China’s longer-term capital market reforms remain intact.
Others remain cautious, warning that competition among Chinese manufacturers could intensify and put pressure on profits as companies compete on price.
“Just like all other Chinese manufacturers, (chipmakers and AI suppliers) will eventually end up in a price war,” said Wang Zhuo, a fund manager at Shanghai Zhuozhu Investment Management.
“There’s no exception. All bubbles inevitably burst.” - October 27, 2026