China's AI stock rally unwinds as STAR50 index falls 40% in under four months

A two-year rally turns

Chinese technology shares have fallen sharply since June, when the rally was at its height. The STAR50 index, which tracks technology and innovation companies listed in Shanghai, is down 40% in under four months, while the broader CSI300 sits about 20% below its June peak. The slide follows roughly two years of gains that were driven by expectations of state support for new technologies and by promises of economic stimulus. The decline also complicates Beijing's effort to move savers out of the old boom-bust cycle and into shares that could finance the AI boom.

Market value losses

The figures for the losses differ between sources. Several outlets report that about $480bn has been wiped from the market value of Chinese shares in under four months. Bloomberg, as cited by The Guardian, puts the drop at $2.4tn from the Chinese stock market since May. These are not the same measure and they cover different periods, so the two numbers should be read separately.

STAR50 index (since June)40%

CSI300 index (below June peak)20%

Zhongji Innolight and Eoptolink (from June-July peaks)60%

STAR50 index (since June)

40 %

CSI300 index (below June peak)

20 %

Zhongji Innolight and Eoptolink (from June-July peaks)

60 %

Data from the article text

Losses in AI and chip shares

Individual stocks have fallen further than the indexes. Unitree, the robot maker, has roughly halved since its August listing. The chip maker CXMT lost more than a quarter of its value within a month. The optical component makers Zhongji Innolight and Eoptolink Technology are about 60% below their June and July peaks. MetaX Integrated Circuits and Moore Threads Technology rose 700% and 400% after their 2025 debuts, and have since fallen by about half.

Valuations and pressure from Washington

Goldman Sachs says AI-related companies make up 42% of the market capitalisation of China's stock market and 57% of trading in A shares and H shares, so the sell-off reaches a wide group of investors. Even after the fall, the STAR50 trades at a price-to-earnings ratio of about 100, against about 30 for the Nasdaq 100. Traders cited high prices, tax obligations and the threat of bans on Chinese equipment in data centres as contributing factors, although no single clear trigger for the selling was identified. The United States has banned humanoid robots from China on national security grounds and is reportedly considering a ban on Chinese components in data centres.

STAR50 (about)100

Nasdaq 100 (about)30

STAR50 (about)

100

Nasdaq 100 (about)

30

Data from the article text

What fund managers and analysts say

Dan Wang, the China director at the Eurasia Group, pointed to weak margins and demand as the core problem.

“This year, the profit margin is not as good as expected. And the US is raising rates. And China's domestic demand is so weak.”

She added that technology companies are generally anxious about whether the state-backed model can work when consumer demand is weak. A 60bn yuan state-backed AI investment fund began putting money into domestic developers this month, yet Chinese consumers have been reluctant to spend. Dong Baozhen, a fund manager in Beijing, described the market as having turned into a speculative rally before the bubble burst. Hong Hao of Lotus Asset Management said the situation would stall the listing plans of many companies that intended to go public.