TL;DR
- China’s AI stocks have crashed. The STAR 50 index of AI and chip companies fell about 40% in under four months, wiping out roughly $480 billion.
- The fall came after prices ran very high: at its peak, the STAR 50 traded at nearly 250 times earnings, compared with about 30 times for the Nasdaq 100.
- AI use in China had been growing fast. Daily AI token calls rose more than 1,000-fold from early 2024 to March 2026, the latest figure we found.
- So the bubble that burst, according to Reuters, is in share prices. The usage data so far doesn’t show the technology itself collapsing.
Where the headline comes from
On October 27, 2026, Reuters published an analysis from Beijing with a blunt headline: “In China, the AI bubble has already burst.” It was quickly picked up by Yahoo Finance, Futurism and others.
“The stock market later evolved into a speculative crazy bull. And now we see the bubble bursting,” Beijing fund manager Dong Baozhen told Reuters.
The key word is stock market. The Reuters piece is mainly about the share prices of Chinese AI and chip companies, although traders it quotes also cite concerns about AI demand. That difference matters, and it’s easy to miss when the headline is shared on its own.
The case that it burst
All figures below are from Reuters unless another source is linked.
| What fell | How much |
|---|---|
| STAR 50 index (AI and chip stocks) | About −40% in under four months, about $480 billion in market value |
| CSI 300 blue-chip index | About −20% from its June peak |
| MetaX and Moore Threads | Down about half since July, after rising 700% and 400% on their debuts last year |
| Zhongji Innolight and Eoptolink | About −60% from their June and July peaks |
| Unitree | Shares roughly halved since trading began in August |
| CXMT | Down more than a quarter in the past month |
Prices were extreme. At its peak the STAR 50 traded at nearly 250 times trailing earnings. It’s now around 100 times, still far above the Nasdaq 100 at about 30 times.
Retail investors piled in. Unitree’s IPO was 8,000 times oversubscribed by retail investors. One Hainan investor told Reuters he believed government support for Unitree, which had state-backed investors, made it safe; he and his friends now have losses.
AI dominates China’s market. AI stocks make up 42% of China’s market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares, according to Goldman Sachs.
Outside pressure added to it. Traders pointed to high valuations, tax bills and the threat of the US and other countries banning Chinese equipment from data centres. Innolight and Eoptolink fell partly because Washington moved to ban them from supplying US data centres.
Beijing wants a calmer market. Beijing is cracking down on leveraged and high-frequency trading and wants a “slow bull” market, and state-backed investors have sold shares during rallies to restrain gains.
Data centres were an earlier warning sign. In 2025, Tom’s Hardware, citing MIT Technology Review, reported that many of China’s new AI data centres sat underused. Monthly rent for an eight-GPU H100 server fell from ¥180,000 to ¥75,000.
The case that it didn’t
The figures on AI use and investment tell a different story. Note the dates: the latest usage figures we found run to March 2026, before the selloff.
- AI use grew very fast. China’s daily AI token calls (a measure of how much AI models are used) reached 140 trillion by March 2026, up from about 100 billion in early 2024, according to Wei Liang of the China Academy of Information and Communications Technology. TechNode ties the jump to wider use of AI agents, since one instruction can trigger many model calls.
- More growth is expected. IDC forecasts that China’s token consumption will grow 20-fold in 2026 compared with 2025.
- Big investments continue. DeepSeek reportedly raised $15 billion, and Huawei secured a $2.3 billion bank loan for AI chips, according to Bloomberg reports cited by Futurism.
- Some investors see a bargain. BNP Paribas strategist William Bratton says the market offers buying opportunities for cautious investors, and HSBC research shows Asia-focused funds remain overweight China.
- Some say it’s not a disaster. Some investors told Reuters the selloff was neither unexpected nor harmful to the long-term reforms that have improved market returns.
In short, the evidence points to a bubble in share prices. We found no data yet showing AI use falling. There’s a famous precedent for a stock crash in a new technology: in the dot-com bust, the Nasdaq fell from 5,048 in March 2000 to 1,139 in October 2002, and most publicly traded dot-com companies had failed by the end of 2001.
What it means beyond China
For the US AI boom: so far, the hit there has been smaller. When Reuters published its analysis, the Nasdaq was down 6% from a record high reached three weeks earlier, and Reuters described US AI stocks as having a “more modest setback” (Reuters). US tech giants are still spending heavily: Alphabet expects to spend $195 billion to $205 billion on chips and data centres in 2026, and Amazon about $220 billion (BeInCrypto via Yahoo Finance). US valuations are also far lower than China’s were, at about 30 times earnings for the Nasdaq 100 (Reuters).
What could come next in China: Morgan Stanley expects offshore Chinese stocks to fall another 10% to 15% before bottoming (BeInCrypto via Yahoo Finance). Lotus Asset Management’s Hong Hao told Reuters the selloff will halt many listing plans (Reuters).
Our take, for readers and investors in India: this is a reminder that “AI” in a company’s story doesn’t guarantee its share price, especially when shares trade at 100 to 250 times earnings, as the STAR 50 has. (We’ve also looked at why AI startups make less profit than normal software companies.) This isn’t investment advice; if you invest in AI-themed funds or stocks, check the valuations and talk to a registered adviser.
FAQ
Has the China AI bubble burst? In the stock market, yes, according to Reuters. The STAR 50 index of AI and chip stocks fell about 40% in under four months, wiping out about $480 billion. AI use in China, however, grew more than 1,000-fold between early 2024 and March 2026, the latest figure we found.
What is the STAR 50 index? It’s a Chinese stock index that Reuters describes as an index of AI and semiconductor companies.
Why did Chinese AI stocks crash? Reuters found no single trigger. Traders pointed to very high valuations, tax bills and the threat of foreign bans on Chinese data centre equipment.
Will the US AI bubble burst next? Nobody knows. In late October, the Nasdaq was down about 6% from its recent record, and US valuations are far lower than China’s were.
Is China still investing in AI? Yes. DeepSeek reportedly raised $15 billion and Huawei secured a $2.3 billion loan for AI chips, according to Bloomberg reports cited by Futurism.