A market built on borrowed hope and widespread participation has begun to give back what it promised, as China's AI and chip stocks lose a large share of their value in under four months. The fall reaches ordinary people like Chen Wensheng, who trusted official encouragement and now carries losses alongside friends who made the same bet. It arrives at a moment when Beijing wanted steadier, slower gains, and the tension between a speculative rally and the patient reform meant to sustain it is now plainly visible. Whether the state steadies the fall or lets the bubble run its course will shape h
In China, the AI Bubble Has Already Burst as Tech Valuations Collapse
Retail investors such as small business owner Chen Wensheng and his friends are nursing losses after buying into the AI rally.
All bubbles inevitably burst.
Mark
Forty percent in under four months. Why is this bigger than a normal correction?
Mimi
Because of how much of the market it is. AI stocks are 42% of China's market capitalisation and 57% of turnover, per Goldman Sachs. When that sector falls, almost everyone feels it.
Mark
And the people holding it are mostly small investors?
Mimi
That's the description. Chen Wensheng in Hainan is one example. He bought partly because state-backed funds were in Unitree, and now he's nursing losses.
Luke
Worth noting that's one investor's account of why he bought. The piece doesn't say how widespread that reasoning was.
Mark
What set off the fall?
Mimi
Nothing obvious. Traders cite high prices, tax bills, and the threat of data-centre bans on Chinese equipment.
Luke
Those are traders' views, not a confirmed cause. The report itself says there was no clear trigger.
Mark
Is the bubble definitely bursting, then?
Mimi
Some say so. Dong Baozhen and Wang Zhuo use that language. But Goldman and BNP Paribas see opportunities, and HSBC says Asia funds remain overweight China.
Luke
And at roughly 100 times earnings, the index is still pricey. Whether that means more falls is a worry some investors hold, not a known outcome. The regulator hasn't commented on the record yet.
El Pulso
- The STAR50 index has fallen 40% in under four months, erasing about US$480 billion and stunning investors who believed the AI rally could not break.
- AI stocks make up 42% of China's market value and most of the trading is done by small retail investors, so the pain is spreading into households across the country.
- Once-celebrated listings like Unitree, MetaX and Moore Threads have been cut in half, and optical and chip makers have shed as much as 60% from their peaks.
- Regulators and state-backed funds are under pressure to steady prices, yet the market is still priced around 100 times earnings, leaving many fearing the decline may deepen before it eases.
A market built on borrowed hope and widespread participation has begun to give back what it promised, as China's AI and chip stocks lose a large share of their value in under four months. The fall reaches ordinary people like Chen Wensheng, who trusted official encouragement and now carries losses alongside friends who made the same bet. It arrives at a moment when Beijing wanted steadier, slower gains, and the tension between a speculative rally and the patient reform meant to sustain it is now plainly visible. Whether the state steadies the fall or lets the bubble run its course will shape how much faith savers place in the next wave of innovation.
Unitree, the robot maker whose shares drew 8,000 times oversubscription from retail buyers when it listed in August, has already seen its stock cut in half. It stands as the most vivid casualty of a sell-off that has struck China's AI and chip sector harder than anything yet seen in the West.
The STAR50 index, which tracks the country's AI and semiconductor leaders, has dropped 40% in less than four months, erasing roughly US$480 billion in market value. No single trigger explains it. Traders point to stretched prices, tax worries, and the prospect that Washington might bar Chinese equipment from data centres.
The damage is wide because the exposure is wide. AI stocks account for 42% of China's market capitalisation and a large share of trading, in a market dominated by small investors. In Hainan, small business owner Chen Wensheng bought into the rally because Unitree counted state-backed funds among its backers, and felt officially encouraged. Now he and his friends are nursing losses, and many investors are retreating to safer assets.
The rout cuts against Beijing's aim of a steady "slow bull" market. Authorities had been curbing leverage and sold into rallies to temper gains, and the slump now threatens the effort to draw savers into stocks to fund the AI boom. Some analysts call the market a speculative bubble finally bursting; others see opportunity for careful investors. What comes next depends on whether regulators and state funds can steady prices, and whether tech firms slow their listings and fundraising.
Unitree, the robot-maker whose shares were 8,000 times oversubscribed by retail buyers when it listed, has seen its stock cut in half since trading began in August. It is the most vivid casualty of a sell-off that has hit China's AI and chip sector far harder than anything yet seen in the West.
The mainland STAR50 index, which tracks AI and semiconductor leaders, has fallen 40% in less than four months. That has erased some US$480 billion (S$615 billion) in market value. The broader blue-chip index is down about 20% from its June highs. By comparison, the Nasdaq has slipped 6% from a record set three weeks ago, a drawdown led by US AI stocks. Global tech shares are wobbling; in China, the report says, they have already crashed.
There was no obvious trigger. Traders pointed to a mix of high prices, tax bills, and the risk that the United States or other countries might ban Chinese equipment from data centres. Worries about AI demand and curbs on Chinese exports sit behind the slide.
The damage is wide because the exposure is wide. According to Goldman Sachs, AI stocks account for 42% of China's market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares, in a market dominated by small investors. 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 2025 debuts, have 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 the south, bought in because he felt officially encouraged, since Unitree counted state-backed funds among its investors. He and his friends are now nursing losses. That frustration, the report says, has pushed many investors into defensive assets and is likely to slow equity fund-raising by tech firms. Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, said the sell-off will halt many companies trying to list.
Valuations remain steep. The STAR50 trades at around 100 times trailing earnings, down from nearly 250 at its peak, against about 30 for the Nasdaq 100, and some investors fear the fall could deepen before it eases.
The rout cuts against Beijing's stated aims. Authorities have been cracking down on leverage and high-frequency trading, and state-backed investors sold into rallies to hold gains in check, all to foster a "slow bull" market with steadier returns. The slump has also hurt the effort to steer savers into stocks to fund the AI boom, and it ended a two-year rally that began with stimulus promises. Fund manager Dong Baozhen of Beijing said the market turned into a speculative "crazy bull" and that the bubble is now bursting. Leo Wang of Qianchuang Capital argued that weighting indexes heavily by tech companies distorted capital behaviour, creating a severe bubble in some sectors and draining others. The China Securities Regulatory Commission did not immediately answer questions Reuters faxed last week; its chairman, Wu Qing, met market participants earlier in October to hear ideas for improving capital markets, according to the regulator's website.
Not everyone is bearish. Some see the sell-off as neither surprising nor harmful to long-term reforms that have lifted returns, particularly income, in recent years. HSBC research shows Asia funds, though sellers over the past three months, are still overweight China. Goldman Sachs put Innolight and CXMT on a revamped recommendation list in early October, and BNP Paribas Securities strategist William Bratton has called the market an opportunity for the careful. On the mainland, though, many want other sectors or lower valuations first. Shanghai fund manager Wang Zhuo of Zhuozhu Investment Management expects chipmakers and AI suppliers to end in a price war like other Chinese manufacturers: "All bubbles inevitably burst."
What to watch is whether regulators and state funds step in to steady prices, and whether listings and fund-raising by tech firms slow further.
Citas Notables
The stock market later evolved into a speculative crazy bull, and now we see the bubble bursting.— Dong Baozhen, Beijing-based fund manager
What's happening is now going to put a stop for many of the companies trying to get themselves listed.— Hong Hao, Lotus Asset Management
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