China’s AI stock rally has collapsed, wiping out about $480 billion as the STAR50 index of AI and chip companies fell 40% from its July high.
US AI stocks have taken a far smaller hit so far. The Nasdaq is about 6% below the record it set three weeks ago. This week’s Big Tech earnings will test whether that gap holds.
How China’s AI Bubble Burst
Analysts have pointed to stretched prices, tax bills, and the risk of US bans on Chinese data-center equipment.
The damage is wide. AI stocks account for 42% of China’s market value and 57% of its trading, according to Goldman Sachs.
The broader CSI 300 index of China’s biggest companies entered a bear market last week, as BeInCrypto reported.
“The stock market later evolved into a speculative crazy bull. And now we see the bubble bursting,” Reuters reported, citing Dong Baozhen, a Beijing-based fund manager.
Even after the crash, the STAR50 trades at about 100 times past earnings. The Nasdaq 100 trades at about 30 times.
Why This Week Could Decide the US AI Trade
Microsoft and Alphabet report Wednesday after the market closes, hours after the Federal Reserve’s 2 p.m. ET rate decision. Amazon follows Thursday, as BeInCrypto’s Big Tech earnings preview outlined.
Alphabet expects to spend $195 billion to $205 billion on chips and data centers in 2026. Amazon expects about $220 billion. Both now spend more cash than their businesses bring in.
Cloud sales are the payoff investors want to see. Microsoft guided for 44% to 45% growth at Azure, its cloud unit. Google Cloud grew 82% last quarter.
Goldman Sachs analyst Gabriela Borges expects investors to focus on Azure’s return on invested capital. Alphabet fell 7.1% after its July report despite beating profit estimates.
Amazon CEO Andy Jassy has said even its higher spending will not meet all demand this year.
Morgan Stanley expects offshore Chinese stocks to fall another 10% to 15% before China’s stocks bottom. In the US, all three companies have trailed the S&P 500’s 11% gain this year heading into results.
