China’s AI Stock Bubble Bursts, Erasing $480 Billion as Wall Street Weighs Its Own Risk
China’s artificial intelligence stock boom has gone bust, with the STAR50 index of tech leaders down 40% in less than four months and about $480 billion in market value wiped out, Reuters reported Monday.
China’s blue-chip index is down about 20% from its June highs. In the U.S., AI stocks have led a much milder pullback, with the Nasdaq down 6% from a record set three weeks ago.
Traders pointed to no single trigger. Instead, they said high prices, tax bills and the threat that the U.S. or other nations could ban Chinese equipment from data centers all contributed.
The stakes are large. AI-related stocks make up 42% of China’s market capitalization and 57% of trading turnover across mainland and Hong Kong shares, by Goldman Sachs’ count.
“The stock market later evolved into a speculative crazy bull,” Beijing-based fund manager Dong Baozhen said. “And now we see the bubble bursting.”
Retail favorites have been hit hardest. Robot maker Unitree has lost half its value since its August debut, memory chipmaker CXMT is down more than 25% in a month, and chip designers MetaX and Moore Threads have halved since July.
Optical parts makers Zhongji Innolight and Eoptolink Technology are down about 60% from highs in June and July, partly as Washington moves toward barring them from supplying U.S. data centers.
Even after the slide, the STAR50 trades near 100 times earnings, down from nearly 250, compared with about 30 for the Nasdaq 100.
“Just like all other Chinese manufacturers, (chipmakers and AI suppliers) will eventually end up in a price war,” said Wang Zhuo, a partner at Shanghai Zhuozhu Investment Management.
Doubts Build on Wall Street
In the U.S., Apollo Global Management chief economist Torsten Slok wrote in a note last week that AI “has delivered zero financial payoff to corporate America outside of tech.”
Revenue per worker and profit margins are rising for the Magnificent Seven tech giants but are flat for the rest of the S&P 500, which Slok calls the S&P 493. He found no sign that AI is lifting productivity growth.
“With no impact on the bottom line, mainstream corporate America is pulling back and starting to view token spending not as a source of growth but as a cost center that weighs on margins,” he wrote.
Citadel founder Ken Griffin said last week there are “almost certainly bubbles” in AI. Tech companies building out AI issued $193 billion in bonds by early August, up from $16.7 billion in all of 2024, according to LSEG data.
Not everyone expects a crash soon. Yardeni Research said its AI Bubble Meter shows bubble conditions at 83 out of 100 but triggers at just 34. “The meter says there’s a bubble, but it’s not about to burst,” the firm wrote.
The debate will get fresh data this week, as Microsoft and other major AI spenders report quarterly earnings and update investors on their data center budgets.
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