While the US is still debating whether there is an AI bubble, in China it already looks like a crash. The STAR 50 index, which tracks the leading chip and AI companies on Shanghai's tech board, has fallen about 40% from its July peak in under four months. According to a Reuters analysis, about $480 billion of market value has been wiped out along the way.
Who was hit
The declines hit exactly the companies seen as China's national champions in the tech race. Memory chipmaker CXMT lost more than 25% in the past month alone. MetaX and Moore Threads, seen as China's answer to Nvidia, have lost about half their value since July. According to reports, robot maker Unitree has also lost about half its value.
Why it happened
According to Reuters, no single factor brought the index down. Traders point to extremely stretched valuations, tax bills and the threat that the US and other countries will ban Chinese equipment from data centers. Beijing itself contributed: in early October it issued guidelines against bubbles in "new productive forces" and curbed leveraged and high-frequency trading.
The numbers show how far valuations went. Even after the fall, the index trades at about 100 times trailing earnings, down from nearly 250 at the peak, compared with only about 30 for the Nasdaq 100. According to a Goldman Sachs estimate, AI-related shares accounted for 42% of China's market capitalization and 57% of trading turnover.
What now
According to reports, state-backed funds have started buying to slow the fall. Analysts are divided: some see the declines as a chance to buy Chinese tech companies more cheaply, while others think the correction is not over. For investors in the US, including in the big tech companies reporting results this week, it is a reminder that even a real growth story can crash when prices run ahead of reality.
