China’s AI Stocks Plummet by $480 Billion Amid Market Sell-Off

China's technology sector is grappling with a significant sell-off, as highlighted by the STAR 50 index, which tracks firms in artificial intelligence and semiconductors. In less than four months, the index has plummeted about 40%, resulting in a staggering loss of approximately $480 billion in market value.
On October 27, the downturn continued, with the index falling another 4.8%, marking a seven-month low. Broader market conditions are equally troubling, with China's stock market reportedly losing around $2.4 trillion since May.
Several companies that had previously attracted investor enthusiasm during a surge in AI stocks are now facing steep declines. Dan Wang, the China director at the Eurasia Group, noted that profit margins for the year are less promising than expected, compounded by rising interest rates in the U.S. and weak domestic demand in China.
The U.S. has imposed a ban on humanoid robot imports from China, citing national security concerns, and is exploring further restrictions on Chinese components used in data centers. This development is particularly impactful for companies that rely heavily on exports to international markets. Domestically, these firms are challenged by limited consumer interest in pricey tech products.
Wang expressed skepticism regarding the potential for embodied intelligence to generate profit at a mass market scale. For instance, Unitree, a robotics manufacturer, has seen its shares drop approximately 50% since its trading debut in August. Similarly, MetaX Integrated Circuits and Moore Threads Technology have experienced comparable declines since July.
Once riding high, AI-related firms constituted nearly 42% of China's total market value, but now their share prices are in freefall. Investors are increasingly questioning whether these companies can generate sufficient revenues to substantiate their valuations, amid concerns regarding demand, prospective tax implications, and potential restrictions on Chinese tech firms servicing foreign data centers.
This scenario underscores significant challenges facing China's technology investment strategy. The decline in share prices could impede companies from raising capital through public offerings or other fundraising avenues.