China Stock Market Crashes: Has the AI Bubble Finally Burst?

China, the world’s second-largest stock market, has entered a technical bear market as the AI-driven sell-off spreads beyond the technology sector. The benchmark CSI 300 Index, which tracks 300 major companies listed in Shanghai and Shenzhen, has dropped more than 20% from its June peak, wiping out an estimated $3.5 trillion in market value.

Meanwhile, China’s STAR 50 Index has also dropped around 40% since July, wiping out nearly $480 billion in value.

How China’s AI Boom Turned Into a Market Crash

Over the past two years, investors poured huge amounts of money into Chinese AI, semiconductor, robotics and data centre companies, pushing their share prices far above their actual earnings. These stocks became a major part of China’s market, accounting for around 42% of its total market value and 57% of daily trading volume.

At their peak, companies in the STAR 50 Index traded at nearly 250 times their past earnings. But as investors began questioning whether these companies could turn heavy AI spending into profits, the rally reversed. 

By late October, mainland stocks had lost an estimated $2.4 trillion in value since May. The STAR 50’s valuation has also fallen to around 100 times past earnings, although it remains well above the Nasdaq 100’s roughly 30 times.

AI Stocks Lose Up to 85% as Investors Pull Back

The sell-off has hit some of China’s most popular AI stocks. GPU makers Moore Threads and MetaX Integrated Circuits, which surged around 400% and 700% during their market debuts, have each lost roughly half their peak value since July. Their shares are now trading at CNY 334 and CNY 457, respectively. 

Unitree Robotics, Zhongji Innolight and Eoptolink Technology have fallen around 60% from their highs amid fears of possible US restrictions on supplying American data centres. 

Meanwhile, memory-chip maker ChangXin Memory Technologies (CXMT) has dropped more than 25% over the past month, with its shares now at CNY 42.87. AI firms MiniMax and Zhipu have suffered even deeper losses, reportedly falling more than 85%.

Retail investors, who drive roughly 90% of daily trading volume, have also played a major role in the boom. Now, falling prices are forcing investors to rethink those bets.

The damage has not been limited to technology. Alibaba and JD.com have also faced losses, while electric vehicle makers Nio and XPeng have fallen around 53% and 67% from their respective highs. 

Could China’s AI Crash Get Worse?

Despite the steep losses, Chinese AI stocks remain 100x expensive compared with major US technology shares. That leaves room for further declines if earnings fail to catch up with valuations.

Morgan Stanley has reportedly warned that Chinese stocks could fall another 10% to 15% before finding a bottom.