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China's STAR50 index has dropped 40% in under four months, erasing about $480 billion as AI stocks reel from demand doubts and US curbs on Chinese equipment.
- The STAR50 index of AI and chip leaders is down about 40% from its July high, erasing roughly $480 billion in market value.
- The CSI 300 has fallen about 20% from its June peak after ten straight weekly declines, its first bear market since 2020.
- Even after the drop, the STAR50 trades near 100 times trailing earnings, against about 30 for the Nasdaq 100.
Lead
The STAR50 index, the Shanghai benchmark of China's largest semiconductor and artificial intelligence companies, has lost about 40% since its July peak, wiping out roughly $480 billion in market value. The slide is the sharpest unwinding of ai stocks in the world's second-largest economy since the rally began. It has undercut Beijing's push to channel household savings into equities to help finance the country's AI build-out. State-led funds have stepped in with their heaviest buying since the April 2025 trade-war rout, but the index has so far failed to find a floor.
What Happened to China's STAR50 Index?
The STAR50 fell roughly 40% in under four months after a two-year rally driven by stimulus expectations and heavy retail participation. The broader CSI 300 blue-chip index has dropped about 20% from its June high. It slipped into bear-market territory in the week to October 22 after ten consecutive weekly losses, with a 2.6% decline in that week alone.
The damage has been widest among recent listings. Chipmakers MetaX Integrated Circuits and Moore Threads Technology have each roughly halved since July. Both had surged 700% and 400% respectively on their 2025 debuts. Memory-chip maker CXMT is down more than 25% from its post-listing peak. Robot maker Unitree, whose listing was oversubscribed about 8,000 times by retail buyers, has lost about half its value since August.
Optical-components makers Zhongji Innolight and Eoptolink Technology have fallen about 60% from their June and July highs. Washington is moving toward excluding such suppliers from US data centres.
Large caps have not been spared. SMIC (688981) dropped 6.1% in a recent session. In Hong Kong, Alibaba (BABA) fell 6.1%, NetEase (NTES) 6.7% and JD.com (JD) 4.6%. Newly listed AI model developers Z.AI and MiniMax fell 9.4% and 6.9%.
Why Are China's AI Stocks Falling?
China's AI stocks are falling because valuations outran earnings while demand and export-policy risks mounted at the same time. Three pressures have converged.
- Valuation. At the peak, the STAR50 traded near 250 times trailing earnings. It now sits near 100 times, still more than three times the Nasdaq 100's multiple of roughly 30. That gap leaves room for further compression.
- Export restrictions. Possible bans by the United States and other countries on Chinese-made equipment in data centres threaten overseas revenue for optical, networking and server suppliers.
- Concentration and taxes. AI-linked shares account for about 42% of China's market capitalisation and 57% of turnover across mainland and Hong Kong markets. Investors facing tax bills on gains have added to selling as prices turned.
The macro backdrop is weak. Excess capacity, overinvestment, soft consumption and a property-market slowdown have limited the earnings growth that could justify premium multiples.
How Is Beijing Responding?
Beijing is responding with state-fund buying rather than new stimulus. Government-linked funds have made their largest purchases since April 2025, aiming to slow the decline in the STAR50 and CSI 300.
The intervention reflects the policy stakes. Authorities have encouraged households to move savings from property and bank deposits into equities, partly to support funding for domestic chips, data-centre capacity and AI applications. A prolonged slump in ai stocks erodes retail confidence and raises the cost of capital for the companies Beijing wants to scale. It also strains the broader aim of reducing reliance on foreign semiconductor technology, a goal tied closely to US export controls.
What Does the Selloff Mean for Global Markets?
The selloff matters globally because AI-related equities have been a central driver of index returns in the United States, Taiwan and South Korea. China's correction shows how quickly sentiment can reverse when valuations are stretched and policy risk rises.
Direct spillovers have so far been contained. Chinese AI hardware names are largely absent from the main global indices that drive US flows. Still, a sustained fall in mainland chip and optical suppliers would pressure regional supply chains and widen the gap between Chinese and US technology valuations. It would also test global appetite for the next wave of Chinese tech listings, including AI model developers recently listed in Hong Kong.
What Comes Next for China's AI Stocks?
The near-term path depends on three variables: how far state buying can offset retail and institutional selling, whether Washington formalises data-centre exclusions for Chinese suppliers, and whether quarterly results show AI revenue that supports current multiples.
If earnings disappoint, a STAR50 multiple still near 100 times leaves room for further de-rating. If policy support deepens and export rules stay limited, the index could stabilise, though a return to the July peak would require a clear improvement in demand. Recent IPOs, which rose most on debut, are the most exposed to continued position unwinding.
Outlook
The STAR50's 40% drop and the CSI 300's bear market mark the end of a speculative phase in Chinese AI equities. Valuations have compressed but remain high, state funds are active buyers, and US export policy is the main external risk. Over the next three to twelve months, earnings delivery and trade restrictions will decide whether the sector rebuilds on fundamentals or keeps correcting.
Mentioned tickers: 688981, 688256, BABA, JD, NTES
