China’s AI stock bubble bursts: $480 billion wiped out | What went wrong, and is the selloff over?

China’s AI and semiconductor stocks have lost about $480 billion in market value, ending a two-year rally. High valuations, concerns about AI demand, export restrictions and potential price wars fueled the selloff. 

China’s artificial intelligence (AI) and semiconductor stocks have plunged, wiping out about $480 billion in market value as lofty valuations collide with concerns over AI demand and restrictions on Chinese exports, Reuters reported.

The selloff has brought a two-year rally to an abrupt halt, undermining Beijing’s efforts to establish a “slow bull” market that delivers more reliable returns. China’s STAR50 index, which tracks AI and semiconductor leaders, has fallen 40% in less than four months, while the broader CSI300 blue-chip index has dropped about 20% from its June highs.

“The stock market later evolved into a speculative crazy bull,” Beijing-based fund manager Dong Baozhen told Reuters. “And now we see the bubble bursting.”

What went wrong with China’s AI stocks?

The rally had pushed Chinese technology valuations to levels exceeding those in Western markets and elsewhere in Asia. According to Goldman Sachs, AI stocks accounted for 42% of China’s market capitalisation and 57% of turnover across mainland-listed A-shares and Hong Kong-listed H-shares.

There was no single trigger for the reversal. Traders cited expensive valuations, tax bills and the threat of the US and other countries banning Chinese equipment from data centres as factors contributing to the selloff.

The correction has hit retail investors particularly hard. Robot-maker Unitree, whose shares were oversubscribed 8,000 times by retail buyers at its August listing, has lost half its value since trading began. Chipmaker CXMT has fallen more than a quarter over the past month.

MetaX Integrated Circuits and Moore Threads Technology, which surged 700% and 400%, respectively, on their market debuts last year, have also lost half their value since July.

Sanchari Ghosh