BEIJING, October 27, 2026 — China’s artificial intelligence sector correction has erased $480 billion in market value, sparking fresh concerns over global tech contagion and stretched valuations.
The Collapse of the STAR50 Index
The damage is wide. The STAR50 index of AI and chip companies fell 40 percent from its July high, wiping out about $480 billion in market value according to Reuters. This meltdown has driven the broader CSI 300 index of China’s biggest companies into a bear market as BeInCrypto reported.
The reversal reflects a rally that ran to higher heights than markets in the West or elsewhere in Asia. By comparison, US AI stocks have taken a far smaller hit so far with the Nasdaq about 6 percent below its record set three weeks ago according to Reuters. This week’s Big Tech earnings will test whether that gap holds.
Valuations and Export Restrictions
Analysts have pointed to stretched prices, tax bills, and the risk of US bans on Chinese data-center equipment as key drivers. Even after the crash, the STAR50 trades at about 100 times past earnings while the Nasdaq 100 trades at about 30 times according to Reuters.
There has been no obvious selling trigger in China although traders said high prices, tax bills and the threat of the US or other nations banning Chinese equipment in data centres all contributed. Shares in optical parts makers Zhongji Innolight and Eoptolink Technology are down roughly 60 percent from highs in June and July in part as Washington moves towards banning the one-time darlings from supplying US data centres according to Reuters.
Chipmakers MetaX Integrated Circuits and Moore Threads Technology have halved in value since July after surging on their debuts last year according to Reuters. The frenzy and its fallout contrast with a push by authorities to improve returns and dampen volatility by cracking down on leverage and high-frequency trading.
Impact on Retail Investors
The damage is wide for all the noise, AI stocks account for 42 percent of China’s market capitalisation and 57 percent of turnover across mainland-listed A-shares and Hong Kong’s H-shares according to Goldman Sachs.
Chen Wensheng, a small business owner and investor from Hainan, said he bought into the rally emboldened by what he felt was official support for the likes of Unitree. Chen and his friends are now nursing losses as state-backed investors were sellers into rallies to keep gains in check according to Reuters.
“What’s happening is now going to put a stop for many of the companies trying to get themselves listed,” said Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong according to Reuters.
Global Implications
The selloff has stalled Beijing’s efforts to break a longstanding boom-and-bust cycle and establish a “slow bull” market with more reliable returns according to Reuters. The decline has also halted a rally that had lasted two years since promises of economic stimulus sent shares soaring.
While global tech stocks teeter, in China they have already crashed as lofty valuations collapse amid concerns about AI demand and restrictions on Chinese exports according to Reuters.
The market frenzy and its fallout contrast with a push by authorities to improve returns and dampen volatility by cracking down on leverage and high-frequency trading according to Reuters. State-backed investors were sellers into rallies to keep gains in check according to Reuters.
Background
Scenarios in which a global catastrophic risk creates harm have been widely discussed. Some sources of catastrophic risk are anthropogenic, such as global warming, environmental degradation, and nuclear war. Others are non-anthropogenic or natural, such as meteor impacts or supervolcanoes according to Wikipedia.
Sources
- AI Bubble Bursts in China, Wiping $480 Billion: Is America Next?
- China's AI Bubble Bursts: Tech Stock Crash Wipes $480 Billion
- In China, the AI bubble has already burst
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