China’s AI stock bubble has burst, Reuters reports, as $480 billion vanishes
The STAR50 index has fallen nearly 40% from its July peak, leaving retail investors and Beijing's market ambitions exposed
China’s AI stock frenzy has hit the wall. According to Reuters, the country’s AI bubble has burst, and the damage is already measured in hundreds of billions of dollars.
The STAR50 index, which tracks China’s AI and semiconductor leaders, has dropped nearly 40% from its July peak. That slide has wiped out approximately $480 billion in market value in less than four months.
How bad is the damage
The pain is not confined to speculative tech names. China’s CSI 300 index, the benchmark for blue-chip stocks, is down around 20% from its June highs.
Some of the most hyped individual names have fared worse. Unitree’s shares have halved since the company listed in August.
CXMT has fallen more than 25% in the past month alone. MetaX Integrated Circuits and Moore Threads have both seen their share prices roughly cut in half since July 2026.
Why this one hits harder
The scale of AI’s footprint in Chinese markets explains why the fallout spread so widely. According to Goldman Sachs, AI-related stocks accounted for 42% of the total market capitalization of China’s stock market.
The same group made up 57% of turnover across A-shares and H-shares. In other words, more than half of all trading activity was chasing a single theme.
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Fund manager Dong Baozhen described the earlier run-up bluntly.
“Speculative crazy bull.”
Dong framed the steep losses as a turning point for retail investors, who had piled heavily into the segment.
No single trigger has been identified for the reversal. Factors flagged in the coverage include stretched valuations, looming tax obligations, and rising risks tied to export controls.
Beijing saw it coming, sort of
Regulators were not entirely caught off guard. On October 9, 2026, China issued new guidelines meant to prevent investment bubbles in what it calls “new productive forces,” a category that includes AI.
The episode also threatens a broader policy goal. Chinese authorities have been working to encourage households to put more of their savings into the stock market.
A tale of two AI trades
The contrast with the US is striking. While China’s AI stocks have been in freefall, the Nasdaq has seen a comparatively modest pullback of 6%.
Concentration, retail-heavy participation, and export-control exposure appear to have amplified the damage in China.
What this means
The new anti-bubble guidelines are worth watching closely. Export controls remain the other major variable. Any formal restrictions on Chinese AI equipment exports could hit company revenues directly, giving fundamental weight to what has so far been a sentiment-driven sell-off.
When one sector accounts for 42% of market value and 57% of turnover, the trade is crowded by definition, and crowded exits rarely go smoothly.