China AI bubble: STAR50 falls 40%, erasing $480 billion

Key takeaways

• Shanghai's STAR50, an index packed with artificial intelligence and chip makers, has lost about 40% in under four months, wiping out roughly $480 billion of market value, according to a Reuters analysis published on October 26, 2026.
• China's blue-chip CSI 300 is about 20% below its June high, while the US Nasdaq is only around 6% off its record, Reuters reported.
• Even after the slide, STAR50 stocks trade near 100 times trailing earnings, down from almost 250 at the peak, versus about 30 for the Nasdaq 100.
• Traders blame stretched valuations, tax bills, doubts about AI demand and the threat of bans on Chinese equipment in data centres; no single trigger has been identified.

The China AI bubble has already burst on the mainland stock market, Reuters argued on Monday: the STAR50 index of AI and semiconductor leaders is down about 40% since early summer, a fall worth around $480 billion, while US tech shares have barely corrected.

What happened to China's AI stocks

The STAR50 tracks the 50 largest and most liquid companies on the STAR Market, the Shanghai Stock Exchange's Nasdaq-style board for technology firms. After a rally of more than 70% from April through July, the index peaked in late June and July and then reversed, TokenPost reported on October 9. By the end of the third quarter it was already about 30% below its late-June high, and on October 9 it dropped nearly 5% to a five-month low, extending a two-day loss beyond 9%, according to the same report.

In its October 26 analysis, Reuters put the cumulative decline at about 40% in less than four months. The broader CSI 300 index of blue-chip stocks has fallen roughly 20% from its June high over the same stretch. By comparison, US AI stocks have led only a 6% drawdown in the Nasdaq from a record set about three weeks earlier, Reuters said.

The losses are concentrated in names that were the stars of the 2025–2026 rally. According to Reuters:

• Robot maker Unitree, whose share sale was about 8,000 times oversubscribed by retail buyers, has halved since it began trading in August.
• Memory chip maker CXMT has lost more than a quarter of its value in the past month.
• GPU designers MetaX Integrated Circuits and Moore Threads Technology, which jumped about 700% and 400% on their debuts last year, have each halved since July.
• Optical component makers Zhongji Innolight and Eoptolink Technology are down roughly 60% from their June and July highs, partly because Washington is moving to bar them from supplying US data centres.

Key numbers: China AI selloff vs US tech

Data as of October 26, 2026 (UTC), as reported by Reuters and TokenPost.

Why the STAR50 is falling: what we know

Reuters reported that there was no obvious trigger for the selling. Traders instead pointed to a mix of pressures: valuations that had run far ahead of earnings, tax bills, worries about how much AI spending will actually turn into demand, and the risk that the United States or other countries ban Chinese equipment from data centres. TokenPost earlier cited a reassessment of AI and chip valuations, broader weakness in Chinese shares, higher global bond yields and renewed geopolitical tension.

Fund managers quoted by Reuters were blunt. Beijing fund manager Dong Baozhen said the rally turned into a speculative bull market, adding: "And now we see the bubble bursting." Wang Zhuo of Shanghai Zhuozhu Investment Management expects chipmakers and AI suppliers to end up in a price war, saying "all bubbles inevitably burst." Hong Hao of Lotus Asset Management told Reuters the selloff will halt listing plans for many companies.

Not everyone is bearish. Goldman Sachs included Innolight and CXMT among dozens of Chinese AI stocks on a revamped recommendation list, and BNP Paribas strategist William Bratton said the market offers buying opportunities for careful investors, according to Reuters. HSBC research cited in the piece shows Asia funds are still generally overweight China, although they have been net sellers over the past three months.

What we don't know yet

• Whether Beijing will step in. The China Securities Regulatory Commission did not immediately reply to Reuters' questions. Its chairman, Wu Qing, met market participants earlier in October to gather suggestions on improving capital markets.
• How far US restrictions on Chinese optical and data-centre suppliers will go; Reuters said Washington was moving toward banning Chinese optical makers from supplying US data centres.
• Whether the slump spreads to US AI stocks, where valuations are lower but spending worries have also hit chip shares in recent weeks.

Background: how China's AI rally was built

The selloff has slammed the brakes on a two-year rally that began when promises of economic stimulus sent Chinese shares sharply higher, Reuters noted. Authorities wanted household savings to flow into equities and supported a wave of tech listings on the STAR Market. At the same time, regulators tried to cool speculation by curbing leverage and high-frequency trading, and state-backed investors sold into rallies to limit gains. The AI theme came to dominate: Goldman Sachs estimates AI-linked stocks make up 42% of market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares.

For the daily picture, see our China and Hong Kong stocks brief for October 26, which showed AI hardware shares falling again as the Communist Party plenum opened. The geopolitical side of the story is covered in our explainer on Pax Silica versus China's AI bloc.

What it means

The gap between Shanghai and New York is the key point. US AI stocks have so far suffered a modest pullback, as covered in our report on the Nasdaq falling on AI spending worries, while China's AI board has already lost about 40% of its peak value. Yet the STAR50 still trades at more than three times the Nasdaq 100's earnings multiple, which shows how far prices had run ahead of profits even before the slide.

For China, the slump undercuts Beijing's push to move household savings into stocks and is likely to slow the pipeline of tech IPOs. For global investors, it is a live case study of what an AI valuation reset can look like, and a reason the debate over whether AI spending will pay off, discussed in our piece on Apollo's Torsten Slok and the AI payoff, now has a real-world test outside the US. Wider pressure on chipmakers is tracked in our semiconductor index report.

This article is for information only and is not investment advice.

Correction (Oct. 28, 2026): An earlier version of this article said Goldman Sachs "kept" Innolight and CXMT on its list, that Reuters described US curbs on Chinese optical suppliers as "under way rather than final," that the selloff "ends" China's two-year rally, and that China's securities regulator "did not respond" to Reuters. Those passages have been revised to match the Reuters report.