Chinese artificial intelligence and semiconductor companies have lost around US$480 billion in market value in less than four months. The 40% drop in the STAR50 Index has raised concerns about investments in the sector and the risks to international stock markets.
The so-called artificial intelligence (AI) bubble may have already burst in China. While international investors debate whether technology stocks are overvalued, Chinese companies in the sector are accumulating billions of dollars in losses, according to a Reuters report published on Monday.
The STAR50 Index, which tracks artificial intelligence and semiconductor companies traded in mainland China, fell 40% in less than four months. The decline wiped out approximately US$480 billion in market value, equivalent to around R$2.5 trillion.
The drop interrupted a two-year upward trend driven by expectations of economic stimulus and investor enthusiasm for the development of artificial intelligence.
"The stock market subsequently evolved into rampant speculation," Beijing-based fund manager Dong Baozhen told Reuters.
"And now we are seeing the bubble burst," he added.
What Is the Artificial Intelligence Bubble?
A financial bubble occurs when the prices of certain assets rise far above levels considered sustainable based on the actual performance and prospects of the underlying businesses.
In the case of artificial intelligence, investors began betting that technology companies, chipmakers, robotics developers, and suppliers of data center equipment would experience extraordinary growth in the coming years.
This enthusiasm drove share prices sharply higher, even for companies whose profits did not yet justify their valuations.
When investors begin to question these expectations, stocks can experience steep declines.
This does not mean that artificial intelligence has stopped working or lost its technological importance. The issue is how much the market is willing to pay for companies in the sector.
Why Have Artificial Intelligence Stocks Fallen in China?
According to Reuters, there was no single event responsible for triggering the sell-off.
Factors cited by investors include high company valuations, concerns about future demand for artificial intelligence, tax issues, and the possibility of new trade restrictions imposed by the United States.
The U.S. government is considering measures that could limit the supply of Chinese equipment for data processing centers.
Concerns also affect manufacturers of components used in servers and the infrastructure required to operate artificial intelligence systems.
The scale of the losses reflects the importance the sector has come to hold in China's financial market.
According to Goldman Sachs data cited by Reuters, AI-related stocks account for 42% of the market capitalization covered by the analysis and represent 57% of trading volume across the stock markets examined in mainland China and Hong Kong.
Which Chinese Companies Have Been Hit the Hardest?
Among the companies that have recorded substantial losses is Unitree, a manufacturer of humanoid robots.
The company has lost approximately half of its market value since its shares began trading in August.
Chipmaker CXMT, meanwhile, has seen its valuation fall by more than 25% over the past month.
Two other semiconductor companies, MetaX Integrated Circuits and Moore Threads Technology, have also lost approximately half of their value since July.
The companies had attracted considerable investor interest after recording substantial gains in their stock market debuts.
Optical component manufacturers Zhongji Innolight and Eoptolink Technology have recorded declines of nearly 60% from the peaks they reached between June and July.
Some of these losses are linked to the risk of U.S. restrictions on the supply of equipment for data centers in the United States.
Could the AI Bubble Also Burst in the United States?
The decline in Chinese stocks has reignited the debate over the valuations of technology companies in other markets, particularly in the United States.
Reuters notes that the market movement in China has been much more severe than the recent correction observed in U.S. stock markets.
While the STAR50 lost 40% in less than four months, the Nasdaq fell approximately 6% from its record high reached three weeks before the report was published.
One concern among investors is that companies are spending billions of dollars building data centers and developing artificial intelligence models without any guarantee of a proportional financial return.
Nevertheless, analysts disagree on the likelihood of a widespread collapse.
Goldman Sachs kept Chinese companies in the sector on its recommended list, while strategists at BNP Paribas identified opportunities for more cautious investors.
Source: Reuters
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