A boom in Chinese artificial intelligence and semiconductor stocks that ran for roughly two years has reversed sharply, according to a Reuters analysis published on October 26. The STAR50 index, which tracks the country’s leading AI and chip companies, has fallen about 40 percent in under four months, wiping out approximately $480 billion in market value.
The decline has spread beyond the AI sector. China’s broader blue-chip index has dropped around 20 percent from the highs it set in June 2026, and the CSI 300 index, which tracks the country’s largest companies, entered a bear market in the week before the Reuters report, commonly defined as a fall of 20 percent or more from a recent peak.
A rally built on stimulus promises
The rally that preceded the crash was fuelled by promises of economic stimulus from Beijing, which had also been encouraging retail investors to put their savings into equities as part of a push for a steady, so-called ‘slow bull’ market. Instead, AI and chip stocks became deeply concentrated bets: Goldman Sachs estimates they account for 42 percent of China’s total market capitalisation and 57 percent of turnover across mainland A-shares and Hong Kong H-shares.
Two chipmakers illustrate the scale of the swing. MetaX Integrated Circuits and Moore Threads Technology surged 700 percent and 400 percent respectively in the year after their market debuts. Both have roughly halved in value since July 2026.
The stock market later evolved into a speculative crazy bull. And now we see the bubble bursting. — Dong Baozhen, Beijing-based fund manager
No single trigger identified
Reuters reports that traders have not pinpointed one clear cause for the sell-off. Instead, they point to a mix of factors: valuations that had become stretched even by the standards of past tech rallies, tax bills coming due for investors, and fears that the United States or other countries could restrict the use of Chinese AI equipment in data centres.
Even after the 40 percent fall, the STAR50 AI index still trades at more than three times the earnings multiple of the Nasdaq 100, suggesting valuations remain elevated by comparison. By contrast, the pullback in US tech shares has been far gentler: the Nasdaq is down about 6 percent from a record high set three weeks before the Reuters report.
There’s no exception. All bubbles inevitably burst. — Wang Zhuo, partner, Shanghai Zhuozhu Investment Management
Wang also warned that Chinese chipmakers and AI suppliers could follow the path of other domestic manufacturers into intense price competition. Leo Wang, a partner at Qianchuang Capital in Beijing, told Reuters that the heavy weighting of tech firms in major indexes had distorted capital flows, creating what he called ‘a severe bubble in certain sectors and a serious drain on others.’
The sell-off complicates Beijing’s broader goal of fostering a stable, retail-investor-driven stock market to help finance the country’s AI ambitions. Reuters notes that the episode is likely to be watched closely as a test of how quickly confidence can be rebuilt after such a rapid run-up and reversal.
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