A market that once carried the promise of a nation's technological ambition has, in less than four months, shed nearly half a trillion dollars in value as its brightest names came back down to earth. The story is less about a single collapse than about a bubble that inflated on hope and state encouragement, and now confronts the old truth that prices cannot outrun the earnings beneath them. Beijing had hoped for a steady, patient rise; instead, the crowd that rushed in with faith is now counting its losses, and the outcome will depend on whether valuations settle and whether distant policy dec
China's AI Stock Rout Wipes Out $480 Billion as Retail Bubble Bursts Under Valuation Pressure
Eight thousand times oversubscribed at listing, now worth half
Mark
Forty percent in four months is a huge number. What's the core of this story?
Mimi
It's that China's AI boom was driven by small investors, and they're now holding the losses. AI stocks are 42% of market cap, so this isn't a niche corner.
Mark
Chen Wensheng said he bought because he felt the state was behind it. Does that matter?
Mimi
It does. Unitree had state-backed funds as investors, and he read that as a signal. Now frustration is pushing people into defensive assets, which could slow fundraising for tech firms.
Luke
Careful, though. That's one investor's account, and his friends'. The source doesn't show how widespread that belief was.
Mark
Fair. What about the cause? Was there a trigger?
Mimi
Not an obvious one. Traders cited high prices, tax bills and the threat of data-centre bans on Chinese equipment.
Luke
And that's what traders said, not something confirmed. The reporting itself says there was no clear trigger.
Mark
The valuation gap looks stark, 100 times earnings against 30 for the Nasdaq 100.
Mimi
And it was nearly 250 at the peak. Some worry it gets worse before it gets better.
Luke
Worry is the operative word. Goldman and BNP are pointing to buying opportunities, and HSBC says Asia funds are still overweight China. Nobody knows where the bottom is.
Mark
So what do we watch?
Mimi
Washington's move on Chinese optical parts in US data centres, and whether valuations fall enough to bring mainland buyers back.
Le Pouls
- China's AI and chip stocks have collapsed 40% in under four months, wiping out roughly $480 billion in value while Western tech only wobbles.
- Retail investors who piled into darlings like Unitree and Moore Threads are sitting on losses of half their money, and few households have escaped the damage.
- Regulators are tightening leverage and trading rules to calm the market, yet their chosen 'slow bull' now looks stalled and far from reach.
- Washington's move to bar Chinese optical parts and chips from US data centres has hammered suppliers, and analysts warn the rout may still deepen before valuations reset.
A market that once carried the promise of a nation's technological ambition has, in less than four months, shed nearly half a trillion dollars in value as its brightest names came back down to earth. The story is less about a single collapse than about a bubble that inflated on hope and state encouragement, and now confronts the old truth that prices cannot outrun the earnings beneath them. Beijing had hoped for a steady, patient rise; instead, the crowd that rushed in with faith is now counting its losses, and the outcome will depend on whether valuations settle and whether distant policy decisions in Washington tighten further.
Unitree, the robot maker, was oversubscribed 8,000 times by retail buyers when it listed in August. Since then its shares have lost half their value, and it has become the sharpest symbol of a broader collapse in China's AI and chip stocks. The STAR50 index, which tracks the sector's leaders, has fallen 40% in less than four months, erasing roughly $480 billion. The slide has ended a two-year rally that began with promises of economic stimulus.
There was no single trigger. Traders pointed to lofty prices, tax concerns, and the fear that the United States or other countries might ban Chinese equipment from their data centres. A Beijing fund manager summed it up bluntly: a speculative bull market had turned into a bubble, and now it is bursting.
The pain is widespread because AI stocks make up 42% of China's market capitalisation and dominate trading. Small investors, many of them drawn in by the sense of official backing, are nursing losses. Chen Wensheng, a small business owner in Hainan, bought in because state-backed funds were among Unitree's investors. Now he and his friends are counting their losses, and their frustration is pushing many toward safer assets.
Beijing's aims are cutting against it. Authorities have cracked down on leverage and speculative trading to dampen volatility, and state investors have sold into rallies. The goal was a reliable 'slow bull', and the rout has stalled it. Some investors fear the decline has further to run, since valuations, though down sharply, remain high. Others see the correction as healthy, and a few brokers are still recommending select AI names. The next signals to watch are whether Washington's data-centre restrictions advance and whether prices fall far enough to draw buyers back.
Unitree, the robot-maker, was 8,000 times oversubscribed by retail buyers when it listed. Since it began trading in August, its shares have lost half their value. It is the sharpest illustration of what has happened in China's AI and chip stocks, which have crashed while much of the world's tech sector merely wobbles.
The mainland STAR50 index, which tracks AI and semiconductor leaders, has fallen 40% in less than four months. That erased roughly $480 billion in market value. China's broad blue-chip index is down about 20% from the highs it set in June. The slide has halted a rally that had run for two years, ever since promises of economic stimulus sent shares climbing. By comparison, the Nasdaq is only 6% below a record reached three weeks ago, with US AI stocks leading that modest drawdown.
There was no obvious trigger. Traders pointed to a mix of high prices, tax bills, and the threat that the US or other countries might ban Chinese equipment from their data centres. Beijing-based fund manager Dong Baozhen described the arc this way: the market became a speculative, crazy bull, and now the bubble is bursting.
The pain is widespread because AI stocks make up 42% of China's market capitalisation and 57% of turnover across mainland A-shares and Hong Kong's H-shares, according to Goldman Sachs. The market is dominated by small investors, and few have escaped. Chipmaker CXMT has lost more than a quarter of its value in the past month. MetaX Integrated Circuits and Moore Threads Technology, which jumped 700% and 400% on their debuts last year, have both halved since July. Optical parts makers Zhongji Innolight and Eoptolink Technology are down roughly 60% from their June and July highs, partly because Washington is moving toward barring them from supplying US data centres.
Chen Wensheng, a small business owner and investor from Hainan in southern China, said he bought in because he felt official backing stood behind names like Unitree, which counted state-backed funds among its investors. He and his friends are now nursing losses. That frustration, with a Beijing-backed theme ending badly, has pushed many investors toward defensive assets and is likely to slow equity fundraising by tech firms. Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, said the selloff will stop many companies hoping to list.
Valuations remain the worry. The STAR50 trades at about 100 times trailing earnings, down from a peak near 250, while the Nasdaq 100 sits near 30. Some investors fear the selloff could get worse before it improves.
The episode also cuts against Beijing's stated aims. Authorities have cracked down on leverage and high-frequency trading to improve returns and dampen volatility, and state-backed investors sold into rallies to keep gains in check. The goal was a reliable "slow bull" market, which the rout has stalled. The China Securities Regulatory Commission did not immediately answer questions sent by Reuters last week. Its chairman, Wu Qing, met market participants earlier this month to hear ideas for improving capital markets. Leo Wang of Beijing's Qianchuang Capital argued that weighting tech firms heavily in major indexes distorts capital behaviour, creating a severe bubble in some sectors and a serious drain on others.
Not everyone is gloomy. Some see the selloff as neither surprising nor harmful to long-term market reforms, which have lifted returns, particularly income, in recent years. HSBC research shows Asia funds are overweight China despite selling over the past three months. Goldman Sachs put Innolight and CXMT among dozens of Chinese AI stocks on a revamped recommendation list earlier this month, and BNP Paribas Securities strategist William Bratton has said careful buyers can find opportunities. On the mainland, though, many are eyeing other sectors or waiting for lower valuations. Shanghai fund manager Wang Zhuo expects chipmakers and AI suppliers to end up in a price war like other Chinese manufacturers: "All bubbles inevitably burst." The next test is whether Washington's data-centre restrictions advance, and whether valuations fall far enough to bring buyers back.
Citations marquantes
All bubbles inevitably burst.— Wang Zhuo, partner at Shanghai Zhuozhu Investment Management
The stock market later evolved into a speculative crazy bull, and now we see the bubble bursting.— Dong Baozhen, Beijing-based fund manager
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