China's AI Sector Faces Sharp Market Decline as Bubble Bursts

China's AI industry has seen a steep correction, with the STAR50 index of AI and semiconductor firms losing roughly 40% of its value in the past four months, according to a Reuters report. The decline wiped out about $480 billion in market capitalization.

Beijing-based fund manager Dong Baozhen told Reuters that the market had turned into a "speculative crazy bull" before the bubble began to burst.

Shares of robotics company Unitree have fallen by half since its August IPO, and chipmaker CXMT has shed more than 25% of its value in the last month.

Despite the downturn, some AI firms are still attracting sizable investment. DeepSeek recently secured $15 billion in a funding round, and Huawei obtained a $2.3 billion loan from Chinese banks to purchase additional AI chips, Bloomberg reported.

Analysts note that U.S. trade measures, including tariffs and potential bans on Chinese equipment for data centers, may be contributing to the market weakness by limiting overseas sales of Chinese AI products.

Goldman Sachs estimates that AI stocks represent about 42% of China's total market capitalization, a share comparable to that in Western markets, where concerns about profitability are growing. Recent disclosures from companies such as Anthropic highlight large losses and ambitious spending plans, underscoring broader industry challenges.

Reuters also reported that state-backed investors have sold into market rallies to curb volatility, a strategy that has not altered the underlying lack of demand for AI products.