China’s artificial intelligence and semiconductor stocks have suffered a steep decline, with approximately $480 billion in market value disappearing as investors reassess lofty valuations, AI demand and the risks of restrictions on Chinese technology exports. The downturn has raised concerns about technology companies’ ability to attract investment and proceed with planned stock market listings.
As of October 26, 2026, the mainland STAR50 index, which tracks major technology and semiconductor companies, had plunged 40% from its July peak in less than four months. The selloff also threatens Beijing’s efforts to encourage households to invest their savings in equities and support the country’s expanding technology industry.
The reversal has interrupted a two-year market rally that gained momentum after Chinese authorities promised economic stimulus. Policymakers had hoped to establish a more stable upward trend, known as a “slow bull” market, rather than repeat the country’s familiar cycle of speculative booms and sharp corrections.
China’s broader CSI300 blue-chip index has fallen approximately 20% from its June high.
“The stock market later evolved into a speculative crazy bull,” said Beijing-based fund manager Dong Baozhen, describing the latest decline as the bursting of a bubble.
Chinese technology stocks have suffered more severe losses than their US counterparts. The Nasdaq Composite has declined around 6% from a record reached three weeks ago.
Although no single event has clearly triggered the Chinese selloff, traders have cited expensive valuations, tax payments and the possibility that the United States and other countries could restrict Chinese equipment in data centres.
According to Goldman Sachs, AI-related stocks represented 42% of China’s market capitalisation and 57% of trading turnover across mainland-listed A-shares and Hong Kong-listed H-shares, leaving investors widely exposed to the downturn.
Popular AI and Semiconductor Stocks Slide
Several companies that attracted substantial retail investment have experienced significant losses. Robot manufacturer Unitree, whose shares received demand equivalent to 8,000 times the available supply from retail buyers during its listing, has lost approximately half its value since beginning trading in August.
Chipmaker CXMT has declined by more than a quarter over the past month. MetaX Integrated Circuits and Moore Threads Technology, which surged 700% and 400%, respectively, during their market debuts last year, have also lost around half their value since July.
Chen Wensheng, a small-business owner and investor from southern China’s Hainan province, said he entered the rally believing government support would benefit companies such as Unitree, which counted state-backed funds among its investors. Chen and his friends are now facing losses.
The reversal could weaken investor confidence in Beijing’s technology ambitions and make it harder for companies to raise equity capital.
Shares in optical component manufacturers Zhongji Innolight and Eoptolink Technology have fallen roughly 60% from their June and July peaks. The declines partly reflect Washington’s moves towards restricting their ability to supply US data centres.
Valuations Remain a Concern
Despite the correction, Chinese technology stocks remain expensive compared with US counterparts. The STAR50 index trades at approximately 100 times trailing earnings, down from a peak of nearly 250 times. The Nasdaq 100, by comparison, trades at around 30 times earnings.
Hong Hao, managing partner and chief investment officer at Hong Kong-based Lotus Asset Management, said the downturn could halt planned listings by numerous companies.
Beijing’s Market Reforms Face Pressure
The selloff comes as Chinese authorities seek to reduce market volatility by restricting excessive leverage and high-frequency trading. State-backed investors have also sold shares during rallies to prevent gains from becoming excessive.
The China Securities Regulatory Commission did not immediately respond to questions from Reuters. Its chairman, Wu Qing, met market participants earlier in October to gather suggestions for improving capital markets, according to the regulator’s website.
Leo Wang, a partner at Beijing-based Qianchuang Capital, said excessive emphasis on technology companies in major stock indexes had distorted investment decisions, inflating valuations in some sectors while diverting funds from others.
However, some investors believe the correction could create opportunities and does not necessarily undermine long-term market reforms. HSBC research found that Asia-focused funds generally remained overweight on China despite selling shares during the previous three months.
Goldman Sachs included Zhongji Innolight and CXMT among dozens of Chinese AI stocks on a revised recommendation list published earlier in October. BNP Paribas Securities strategist William Bratton has also identified potential opportunities for selective investors.
Nevertheless, many mainland investors are waiting for lower valuations or considering other industries before buying again.
Wang Zhuo, a partner at Shanghai Zhuozhu Investment Management, warned that Chinese chipmakers and AI suppliers would eventually face price competition similar to other domestic manufacturers.
The sharp correction underscores the risks of speculative investment, even in sectors receiving government support, as investors reconsider whether high valuations can be justified by sustainable business performance.
