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Beijing, Oktober 31, 2026 – China’s artificial intelligence stock rally has come to a dramatic halt, with nearly US$480 billion in market value wiped out in just four months.
The collapse, centered on the STAR50 index, reflects mounting investor unease over overheated valuations, slowing demand, and the specter of tighter U.S. restrictions on Chinese technology exports.
The STAR50 index, which tracks China’s leading AI and semiconductor firms, has plunged 40 percent since July 2026, while the broader CSI300 index has shed about 20 percent from its summer highs.
Analysts note that valuations had reached unsustainable levels, with STAR50 companies trading at nearly 100 times trailing earnings, compared to around 30 times for the Nasdaq 100.
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The correction, they argue, was inevitable.
Several high profile companies have borne the brunt of the downturn.
Unitree Robotics, which debuted in August, has lost half its market value.
Chipmaker CXMT has fallen 25 percent in a single month, while optical component producers Zhongji Innolight and Eoptolink Technology have each plunged by about 60 percent from their peaks.
These declines underscore the fragility of investor confidence in China’s AI sector.
The rout carries broader implications for China’s financial markets.
AI related stocks accounted for 42 percent of total market capitalization and 57 percent of trading turnover across A share and H shares.
With retail investors heavily exposed, the losses risk undermining Beijing’s push to deepen household participation in equity markets.
The downturn also threatens to derail upcoming IPOs, as sentiment cools and fundraising prospects dim.
Market strategists warn that the correction could extend further.
Hong Hao of Lotus Asset Management cautioned that the selloff may stall China’s ambition to build a durable bull market, noting that elevated valuations leave room for additional declines.
Price competition among domestic chipmakers and potential U.S. restrictions on Chinese data center equipment add to the uncertainty.
Still, some investors see opportunity in the wreckage.
With valuations sharply lower, bargain hunters may find long term value in companies positioned to benefit from global demand for AI infrastructure.
Yet the near term outlook remains volatile, as confidence has been shaken and speculative excess unwound.
China’s AI stock meltdown serves as a stark reminder of the risks inherent in speculative bubbles.
For policymakers and investors alike, the challenge now lies in stabilizing sentiment while navigating the shifting dynamics of global technology markets.
