China's STAR 50 index, which tracks the country's leading AI and semiconductor companies, has fallen 40% in less than four months, wiping out about $ 480 billion, roughly R7.9 trillion, in market value. China's broader blue-chip CSI 300 index is down about 20% from its June high.

"And now we see the bubble bursting," one market strategist told Reuters. The fall has added to worries that AI stocks elsewhere, especially in the US, could be next.

There was no single trigger. Traders pointed to very high valuations, tax bills, worries about demand for AI, and the threat of foreign bans on Chinese data centre equipment. The losses spread widely because AI is now a huge part of China's market. According to Goldman Sachs, AI stocks make up 42% of the combined value of mainland and Hong Kong-listed Chinese shares, and 57% of trading. Many ordinary savers piled in.

Shares in robot maker Unitree, whose listing was oversubscribed 8,000 times by retail buyers, have halved since it started trading in August, and chipmaker CXMT has lost more than a quarter of its value in a month.

China's government had encouraged households to move savings into stocks to help fund the AI boom, and analysts say that helped inflate the rally. Even after the fall, the STAR 50 trades at around 100 times the past year's earnings, down from a peak of nearly 250, while the US Nasdaq 100 trades at about 30 times.

Morgan Stanley expects Chinese shares listed offshore to fall another 10% to 15% before they recover. US AI stocks have fallen far less so far, helping push the Nasdaq about 6% below its record high of three weeks ago. But AI-linked companies now make up about 49% of the S&P 500's value, according to JPMorgan, a bigger share than they held in China before its crash. Earnings from Microsoft, Alphabet and Amazon this week are the next big test.

Reuters called the slump an ill omen for wobbly world markets and a setback for China's push to get savers into stocks. Benzinga reported warnings that US markets are showing the same signs China did before the crash, with credit market stress at Meta and CoreWeave adding to the unease. Vision Times cited research estimating that China's six leading AI firms earn only about a tenth of the AI revenue of the two biggest US developers.

It’s worth being precise about what happened. A narrow index of very expensive Chinese AI and chip stocks, pushed up by government encouragement and a wave of retail buying, has fallen hard. That is a real warning, but it is not proof that every AI stock is about to follow.

US AI companies trade at far lower multiples, and many earn substantial profits, which is why the earnings reports this week matter more than headlines about bubbles. The concentration point is the part to take seriously: when a large share of a market rests on one theme, a change in mood hits almost everyone at once.

South African investors have more exposure to tech and AI than they may realise, through global index funds and the large tech holdings inside the JSE's biggest companies. And anyone who has borrowed against their shares should remember that a sharp fall can force a sale at the worst time. It also sets an uneasy backdrop for big listings such as Anthropic's planned IPO.

This is not financial advice, but it is a good week to check how much of your portfolio rides on one story.

You might also like our piece on Moody's signalling an SA upgrade, SA's synthetic financial centre, and data centres as war targets.

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