China's AI stock bubble bursts, wiping out $480 billion as chipmakers plunge up to 60% amid valuation fears

While global tech stocks teeter, in China they have already crashed as lofty valuations collapse under worries about AI demand and curbs on Chinese exports.

The meltdown, tanking the mainland STAR50 index, opens new tab of AI and semiconductor leaders ​by 40% in less than four months and vaporising some $480 billion in market value, is an ill omen for wobbly world markets and a dampener on China's efforts ‌at encouraging its savers into stocks to fund the AI boom.

It has also slammed the brakes on a rally running two years, since economic stimulus promises sent shares soaring, and has stalled Beijing's push to break with a long boom-bust pattern and drive a "slow bull" market that delivers reliable performance. China's broad blue-chip index, opens new tab has dropped about 20% from highs made in June.

"The stock market later evolved into a speculative crazy bull," said Beijing-based fund manager Dong Baozhen. "And now we see ​the bubble bursting."

AI stocks down in US too

The reversal reflects a rally that ran to higher heights than markets in the West or elsewhere in Asia, and compares with a mere prick to US AI stocks, which ​have led a 6% drawdown in the Nasdaq, opens new tab from a record high scaled three weeks ago.

There has been no obvious selling trigger in China, although ⁠traders said high prices, tax bills and the threat of the US or other nations banning Chinese equipment in data centres all contributed.

With AI stocks running to 42% of China's market capitalisation and 57% of ​turnover across mainland-listed A-shares and Hong Kong's H-shares, according to Goldman Sachs, few in a market dominated by small investors have escaped pain.

Shares in robot-maker Unitree, opens new tab, 8,000 times oversubscribed by retail buyers at ​listing, have halved since they started trading in August, and chipmaker CXMT, opens new tab has lost more than a quarter of its value in the past month.