China's artificial intelligence (AI) and semiconductor stocks have lost approximately $480 billion (£360 billion) in market value in less than four months, according to Reuters, as high valuations and concerns about AI demand trigger a sharp market correction.
The downturn has reversed a two-year rally fuelled by expectations of economic stimulus and enthusiasm for China's technological ambitions. The STAR50 index, which tracks major AI and semiconductor companies, has fallen about 40% from its July peak. China's broader CSI300 blue-chip index has also declined approximately 20% from its June high.
AI Stocks Suffer Sharp Declines
The sell-off has hit companies that attracted significant investor interest during the rally. Robotics maker Unitree has seen its shares lose about half their value since trading began in August.
Semiconductor companies MetaX Integrated Circuits and Moore Threads Technology have also fallen by roughly half since July, while memory chipmaker CXMT has lost more than a quarter of its market value in the past month.
According to Goldman Sachs figures cited by Reuters, AI-related stocks account for 42% of China's market capitalisation and 57% of trading turnover across mainland-listed and Hong Kong-listed shares.
The concentration has increased the market's exposure to the sector's decline, particularly among retail investors who bought shares during the rally.
The correction has also challenged Beijing's ambition to establish a more stable, long-term bull market. Fund manager Dong Baozhen told Reuters that the market had developed into a speculative rally before the recent reversal. The sell-off has prompted some investors to reconsider their exposure to technology shares.
High Valuations and Export Risks Weigh on Investors
There has been no single, obvious trigger for the sell-off. Reuters reported that traders pointed to elevated share prices, tax liabilities and the threat of restrictions on Chinese technology exports as contributing concerns. These factors have added uncertainty to a market where expectations had risen sharply.
Potential US restrictions on Chinese optical-component suppliers serving data centres have also weighed on investor sentiment.
Shares in optical-component makers Zhongji Innolight and Eoptolink Technology have fallen by approximately 60% from their June and July highs, respectively, Reuters reported.
Despite the correction, valuations remain elevated. The STAR50 trades at around 100 times trailing earnings, down from nearly 250 times at its peak. By comparison, the Nasdaq 100 trades at approximately 30 times earnings. The gap highlights the difference in valuations between the indices, although it does not by itself establish whether either market is overvalued.
China's AI Ambitions Face Fresh Challenges
The downturn could complicate fundraising plans for Chinese technology companies seeking to list their shares. Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, told Reuters that the market reversal could halt plans for many prospective listings.
The correction also presents a challenge for Chinese authorities seeking to encourage household investment while reducing market volatility. Regulators have pursued measures targeting leverage and high-frequency trading, while state-backed investors have sold shares during rallies to moderate gains.
However, the decline does not necessarily signal a collapse in China's AI industry. Some investors see opportunities in lower share prices, while others warn that competition among chipmakers and AI suppliers could lead to price wars.
The market's recovery will depend in part on whether companies can support their valuations through sustainable demand and earnings growth.
