（Singapore, 27.10.2026）China’s artificial intelligence stock rally has suffered a dramatic reversal, with a selloff in chipmakers, robotics firms and other technology companies wiping out around US$480 billion (S$615 billion) in market value and raising questions about whether the sector’s rapid gains had run too far ahead of demand.
According to Reuters, the STAR 50 Index, which tracks leading companies on Shanghai’s technology-focused STAR Market, has fallen about 40% in less than four months, bringing an abrupt end to a rally that had drawn individual investors into China’s AI boom.
The downturn has also spread beyond technology shares. The broader CSI 300 Index of major mainland companies has dropped about 20% from its June highs, complicating Beijing’s efforts to encourage households to invest in equities and support financing for emerging industries.
Traders point to several pressures behind the reversal, including elevated valuations, tax-related selling and concern that the United States or other countries could restrict Chinese equipment used in data centres, although there has been no single obvious trigger for the selloff.
“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.”
Retail Favourites Come Under Pressure
The losses have been particularly painful for individual investors who piled into technology stocks as enthusiasm for AI pushed prices to exceptional levels.
Robot maker Unitree, whose initial public offering attracted retail orders about 8,000 times the shares available to those investors, has seen its stock fall by half since trading began in August. Chipmaker CXMT has lost more than a quarter of its value over the past month.
Other once-favoured chip stocks have also retreated sharply. Shares in MetaX Integrated Circuits and Moore Threads Technology, which surged 700% and 400% respectively on their market debuts last year, have both fallen by about half since July.
Optical components makers Zhongji Innolight and Eoptolink Technology have dropped roughly 60% from their June and July highs, partly as Washington moves towards banning the companies from supplying US data centres.
The size of the AI trade has made the downturn difficult to avoid. Goldman Sachs estimates that AI-related stocks account for 42% of China’s market capitalisation and 57% of trading turnover across mainland-listed A-shares and Hong Kong-listed H-shares.
Some individual investors had been encouraged by state support for technology companies, including investment by state-backed funds, only to find themselves facing substantial losses as the market turned.
The selloff may also make it harder for technology firms to raise money through share offerings, as investors become more cautious and shift towards defensive assets.
Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, said the market reversal was likely to disrupt listing plans for many companies.
Even after the sharp decline, valuations remain a concern. The STAR 50 trades at around 100 times trailing earnings, down from a peak of nearly 250 times but still well above the Nasdaq 100’s multiple of about 30.
A Setback for Beijing’s “Slow Bull” Ambition
The correction has interrupted a rally that began roughly two years ago, when promises of economic stimulus helped lift Chinese shares, and has challenged policymakers’ efforts to build a more sustainable market with steadier returns.
Authorities have sought to curb volatility by tightening scrutiny of leverage and high-frequency trading, while state-backed investors have sold into rallies to restrain gains. Yet the enthusiasm surrounding AI and semiconductors pushed some companies to valuations that investors now regard as difficult to justify.
Leo Wang, a partner at Beijing-based Qianchuang Capital, said placing too much emphasis on technology companies’ weight in major indexes had distorted investment behaviour, contributing to a severe bubble in some sectors while drawing capital away from others.
The reversal in China has also drawn attention because the decline has so far been much steeper than in the United States, where AI-related selling helped pull the Nasdaq about 6% below a record reached three weeks earlier.
Whether the Chinese selloff signals wider trouble for global technology stocks remains uncertain, with investors also watching whether AI demand and corporate spending can support the expectations built into valuations.
Some fund managers nevertheless see opportunities emerging after the decline. HSBC research shows that Asia-focused funds remain overweight on China overall, despite selling over the past three months, while Goldman Sachs included Zhongji Innolight and CXMT in a revised list of recommended Chinese AI stocks earlier this month.
BNP Paribas Securities strategist William Bratton has also identified potential buying opportunities for selective investors, although others remain cautious about the outlook for margins and further price declines.
Wang Zhuo, a partner at Shanghai Zhuozhu Investment Management, warned that Chinese chipmakers and AI suppliers could eventually face the same price competition seen across other manufacturing industries.
“Just like all other Chinese manufacturers, they will eventually end up in a price war,” he said.
