China's AI stock bubble bursts, wiping out $480 billion

Chinese artificial intelligence and semiconductor stocks have suffered a sharp collapse, with the STAR50 index falling 40 percent from its July peak and erasing about $480 billion in market value. The sell-off hit the country's leading chip and technology firms after a two-year rally fueled by economic stimulus promises.

The downturn in China is far deeper than the weakness seen in the United States. While the Nasdaq sits about 6 percent below its record high reached three weeks ago, China's specialized AI index has lost nearly half its value in less than four months. The broader CSI300 blue-chip index has also dropped roughly 20 percent from its June highs.

Market participants cited excessive valuations, higher tax bills, and the threat of U.S. or other nations banning Chinese equipment in data centers as contributing factors. Goldman Sachs estimates that AI-linked companies account for 42 percent of China's market capitalization and 57 percent of trading turnover across mainland A-shares and Hong Kong H-shares.

Several high-profile companies have borne the brunt of the losses. Robot maker Unitree, which was 8,000 times oversubscribed by retail buyers at its listing, has halved since trading began in August. Chipmaker CXMT has lost more than a quarter of its value over the past month.

Chipmakers MetaX Integrated Circuits and Moore Threads Technology, which jumped 700 percent and 400 percent respectively on their market debuts last year, have also halved in value since July. Beijing-based fund manager Dong Baozhen said the market evolved into a speculative, uncontrolled bull market and that the bubble is now bursting.

The reversal has stalled Beijing's effort to move away from a long boom-bust cycle and establish a reliable "slow bull" market. It also undermines China's push to encourage small investors to channel savings into stocks to fund the AI boom.