China's AI stock bubble has already burst: tech index down 40% in under four months
Shanghai's STAR50 index of AI and chip companies has fallen about 40% since its June peak, wiping out roughly $480 billion in market value, a Reuters analysis shows. Retail favourites such as Unitree have halved, while US tech stocks have only dipped.
While investors around the world debate whether artificial intelligence stocks are in a bubble, in China the bubble has already burst, according to an analysis published by Reuters on Monday, 26 October. The STAR50 index, which tracks the 50 largest companies on Shanghai's technology board, many of them AI and semiconductor firms, has fallen by about 40% in less than four months. Reuters puts the market value lost at some $480 billion.
Market data confirm the scale of the drop. The index closed at 2,207.86 points on 30 June, its high for the first half of the year, and finished at 1,329.19 on 19 October, a fall of almost 40%. China's broader blue-chip index is down about 20% from its June highs. For comparison, Reuters notes that the Nasdaq in New York, led by US AI stocks, is only about 6% below the record it set three weeks ago.
There was no single trigger for the selloff, traders told Reuters. Instead, they pointed to very high prices, tax bills and the risk that the United States or other countries could ban Chinese equipment from data centres. The stakes are large: according to Goldman Sachs, AI stocks account for 42% of the market value and 57% of the trading across mainland A-shares and Hong Kong H-shares, in a market dominated by small investors.
Some of the most popular names have been hit hardest. Robot maker Unitree, whose listing was 8,000 times oversubscribed by retail buyers, has lost about half its value since it started trading in August. Chipmakers MetaX and Moore Threads, which jumped 700% and 400% on their debuts last year, have also halved since July, and memory maker CXMT lost more than a quarter of its value in the past month. Optical parts makers Zhongji Innolight and Eoptolink are down about 60% from their summer highs, partly because Washington is moving towards barring them from supplying US data centres.
Valuations are still high. The STAR50 trades at about 100 times its companies' past earnings, down from nearly 250 at the peak, compared with about 30 for the Nasdaq 100. "What's happening is now going to put a stop for many of the companies trying to get themselves listed," Hong Hao, chief investment officer at Lotus Asset Management in Hong Kong, told Reuters. The crash also sets back Beijing's efforts to build a steady "slow bull" market that draws household savings into shares.
Not everyone is pessimistic. Goldman Sachs still has Innolight and CXMT on a revised list of recommended Chinese AI stocks, and BNP Paribas strategist William Bratton has said the market offers buying opportunities for careful investors. China's securities regulator did not immediately respond to questions from Reuters.