Chinese tech stocks slump as doubts grow over AI profits and US curbs

Mixed · 2China's STAR 50 Index, which tracks technology and innovation companies on the Shanghai stock exchange, has fallen about 40% in recent months, with other indexes of major companies down about 20% over the same period, according to the Guardian. 1 2 Mixed · 2The Guardian, citing Bloomberg, put the loss at $2.4tn from the Chinese stock market since May, while CNA said the STAR 50's decline had wiped out some US$480 billion in market value as of 29 October. 1 2 Mixed · 2Goldman Sachs figures cited by both outlets show how concentrated the market is in AI: more than 40% of stock market value in China and Hong Kong (about 42% of market capitalisation, per CNA), so a fall in these shares hits the whole market. 1 2

Mixed · 2Both outlets point to doubts about profits as a central cause. The Guardian says weak consumer spending leaves many tech companies struggling to turn a profit, and quotes Dan Wang of Eurasia Group citing weaker-than-expected margins, rising US rates and weak domestic demand. CNA's analysts question whether demand can turn into higher profits as capital spending climbs, and one cites intense competition and aggressive pricing squeezing margins. 1 2 Mixed · 2US restrictions are another pressure. The Guardian says the US has banned humanoid robots from China and is thought to be considering a ban on Chinese components in data centres; CNA likewise says Chinese suppliers face the prospect of US restrictions on their equipment in American data centres, and that US export controls limit Chinese access to advanced AI chips. 1 2 Left · 1The Guardian adds that a 60bn yuan state-backed AI investment fund began investing in domestic developers this month, that shares in robot-maker Unitree have halved since listing in August, and that no stimulus is expected during the politically sensitive period around the Communist party's fifth plenum, which lays groundwork for next year's 21st Party Congress. 1

Centre · 1CNA reports that, despite the fall, the STAR 50 still traded at around 100 times trailing earnings on 26 October, down from a peak of nearly 250 times, according to Reuters. Analysts told CNA the sell-off is largely a repricing of expectations and is unlikely to derail Beijing's AI ambitions, though it could make fundraising harder, especially for cash-burning firms, and favour firms with state support. 2 Mixed · 2On the wider picture, the Guardian notes that globally the AI boom is expected to last at least another year and that US firm Anthropic has filed for an IPO expected to raise as much as $100bn, with no comparable listing in China. CNA's analysts see the Chinese slump as an early warning on valuation and financing risk rather than a sign of faltering global AI demand, and caution against reading it across to US markets, where big technology firms have substantial revenue and cash flow. 1 2 Centre · 1CNA also notes that South Korean chipmakers SK Hynix and Samsung Electronics reported record quarterly operating profits this week on AI-driven memory demand, while Gavekal's Christopher Beddor argues the real constraint on China's AI ambitions is access to chips rather than financing. 2