China's AI Stock Boom Turns to a $480 Billion Bust

While Wall Street argues about whether an AI bubble is inflating, one has already popped on the other side of the Pacific. A Reuters analysis published on 26 October put it bluntly: in China, the AI bubble has burst. The mainland's STAR 50 index, which tracks the country's leading AI and semiconductor firms, has dropped about 40 percent in less than four months, wiping out roughly $480 billion in market value.

The damage runs wider than one index. Reuters reckons Chinese stocks have shed around $3.5 trillion since their peak earlier in the year, and the blue-chip CSI 300 has slipped into a bear market. For a rally that was supposed to prove China could build a homegrown AI industry despite US chip restrictions, it is a hard reversal.

No single villain

Traders are not pointing at one trigger. The usual suspects are all present at once: valuations that ran far ahead of earnings, tax bills coming due, and the standing threat that the United States and others could bar Chinese equipment from data centres. Even after the fall, the STAR 50 trades at about 100 times trailing earnings. That is down from a giddy peak near 250, yet still a long way above the Nasdaq 100's multiple of roughly 30. By that measure the air is leaking out, not gone.

Beijing has not watched quietly. State-linked funds stepped in with their heaviest buying since the trade-war rout of April 2025, an intervention meant to put a floor under the selling. The state can slow a decline. Whether it can restore the conviction that sent these shares vertical in the first place is a different question.

A 40 percent drawdown is not a correction you shrug off. It is the market admitting the story got ahead of the numbers, and then trying to work out where the numbers actually are.

A warning that travels

The relevance for everyone else is that the same ingredients are visible in Western markets. The IMF warned this month that a sharp AI stock correction could ripple through the global economy, precisely because so much of the recent gain has been concentrated in a handful of richly valued names. China offers a live demonstration of what that unwind looks like when it arrives.

None of this answers the question investors keep asking at home, which is whether the broader AI bubble is about to burst. It does raise the stakes on the answer. The Chinese boom and the American one were built on the same conviction that demand for AI compute would keep climbing. One of them has now been repriced. The other is watching.