Chinese AI and chip stocks have fallen sharply from their July highs, with the STAR 50 down about 40% and roughly $480 billion in market value wiped out. US technology shares have held up better so far, but results from Microsoft, Alphabet and Amazon this week will give investors fresh evidence on whether AI spending is translating into demand—and whether the gap between Chinese and US AI stocks can persist.
High valuations add to pressure on Chinese AI stocks
Analysts have linked the pullback in Chinese AI shares to rich valuations, tax payments and the possibility that the US could restrict China’s access to data-center equipment. The decline has also come amid broader weakness in Chinese equities: the CSI 300 entered bear-market territory last week.
Goldman Sachs estimates that AI stocks account for 42% of China’s total equity market capitalization and 57% of trading volume. The sector’s retreat therefore affects not only the companies involved but also has the potential to amplify swings across the wider market.
Beijing-based fund manager Dong Baozhen described the earlier rally as a speculative bull market and said the market was now going through a bubble burst. Even after the sell-off, however, the STAR 50 trades at about 100 times trailing earnings, compared with roughly 30 times for the Nasdaq 100. The comparison uses trailing earnings for both indexes, underscoring that the retreat has not erased the Chinese AI sector’s valuation premium.
US earnings to test AI spending and demand
US AI stocks have faced more limited pressure so far. The Nasdaq is about 6% below the record it set three weeks ago, a modest decline compared with the losses in Chinese AI shares. Results from Microsoft, Alphabet and Amazon this week will give investors more information to judge whether the technology giants’ AI spending is matched by demand for their businesses.
Amazon Chief Executive Andy Jassy has said the company cannot meet all AI demand even while maintaining record spending. Investors are therefore looking beyond the scale of capital expenditure to whether that demand can drive sustained business growth—and whether returns can support current valuations.
For now, steep losses in Chinese AI stocks contrast with relative resilience among US technology shares. The Chinese sector’s share of market value and trading, the valuation gap between the STAR 50 and Nasdaq 100, and earnings and spending updates from US tech giants will all inform how investors assess the AI trade.