AI bubble in China: STAR 50 crashes 40%, wiping out $480 billion

China's artificial intelligence stocks have crashed while the rest of the world still debates whether there is an AI bubble. The STAR 50 index, which tracks leading Chinese technology, AI and semiconductor companies listed on Shanghai's STAR Market, fell about 40% in under four months, wiping out roughly $480 billion in market value, according to market reports from October 26 and 27, 2026. The broader CSI 300 index of large Chinese companies has dropped about 20% from its June peak, a fall of the size usually described as a bear market. Shares of optical-parts makers Zhongji Innolight and Eoptolink Technology are down around 60% from their highs in June and July.

For more than a year, investors around the world have argued over whether the excitement around AI has pushed share prices too high. In China, that question appears to have been answered, at least for now. Prices of AI-linked companies rose so fast that, once worries set in about future demand for AI hardware and about US restrictions on Chinese exports, there was little to hold them up. Traders also pointed to high valuations and tax bills as reasons for selling, even without a single clear trigger.

The fall is particularly sharp for companies tied to the global AI supply chain. Makers of optical components, which carry data at high speed between servers in AI data centres, had been among the biggest winners. As the United States moves towards banning some of them from supplying American data centres, their main growth market is at risk, and their shares have lost more than half their value.

Ordinary investors in China are feeling it directly. The case of Unitree, a robot maker whose shares drew enormous demand from retail buyers at listing and have since halved, shows how quickly enthusiasm can turn into losses for small investors who buy at the peak.

The crash also matters outside China. Analysts have pointed to it as a warning sign for US technology stocks, which have also fallen, though far less. If demand for AI hardware slows, or trade restrictions tighten further, other markets with heavy exposure to AI-linked companies could face similar pressure. Not everyone sees the drop as bad news, though: some observers argue that letting excessive prices deflate is healthy for China's market over the long term.

Short-term: Chinese technology shares remain under pressure, and Morgan Stanley's reported view is that offshore Chinese stocks may fall further before stabilising. Retail investors who bought AI and robotics shares near their highs face heavy losses.

Long-term: The episode may cool the rush of AI and chip listings in China and push investors to focus more on profits and real demand than on themes. It may also make global investors more cautious about AI-linked valuations elsewhere.

Who is affected: Investors in Chinese technology stocks, especially retail buyers; Chinese AI, chip and optical-parts companies; global funds with exposure to China; and investors in AI-linked shares in other markets watching for signs of a wider correction.

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