China’s AI Stock Selloff Erases STAR 50’s 64% First-Half Rally

China’s STAR 50 technology index has lost 40.4% since its June closing peak, wiping out a first-half rally of more than 64%. Shanghai Stock Exchange data show it closed October 26 at 1,315.50, against 2,207.86 on June 30. That leaves it 2.1% below its 1,344.20 close at the end of 2025. SSE prices SSE history

Reuters reported Monday that the slump had erased roughly $480 billion in market value, describing an AI-stock bubble that had burst. Its report cited concerns about valuations, demand and possible restrictions on Chinese equipment exports, while noting traders identified no single obvious trigger. The dollar estimate was not accompanied by a constituent list, exchange rate or calculation that readers could reproduce. Reuters reporting

The STAR 50 tracks 50 large, actively traded securities on Shanghai’s technology board. It includes chip designers, manufacturers and other businesses. Information technology accounted for 86.6% of its weight in the September 30 factsheet from China Securities Index (CSI). Cambricon, which designs AI chips, represented 9.75%; SMIC, which manufactures semiconductors for customers, represented 7.50%. Those are dated weights, rather than measurements of the whole Chinese AI industry. CSI factsheet

What the STAR 50 decline measures

The index’s rules select companies by liquidity and market size, rather than by how much AI revenue they earn. Before selecting by size, the provider removes the least-traded tenth of eligible securities, using average daily trading value over the previous year. Its calculation multiplies share prices by adjusted share counts and weight factors. At scheduled reviews, those factors limit one constituent to 10% and the largest five together to 40%. Prices can subsequently move those weights between reviews. Index rules

CSI’s September snapshot reports two different market-value measures. Market capitalization is the stock-market value of outstanding shares. The constituents’ full market capitalization was 5.4621 trillion Chinese yuan (RMB), while capitalization used for the index calculation was RMB2.7477 trillion. The latter was about half the former. A percentage move in the index therefore cannot simply be multiplied by either current total to reconstruct a historical dollar loss. CSI factsheet

The basket also changed during the selloff. Five companies entered the STAR 50 in the September adjustment: Raytron Technology, Huafeng Technology, E-Town Semiconductor Technology, Insta360 and SJSemi. Trading in the revised basket began September 14. A fixed group of companies held since June would consequently differ from the index investors were following in October. Rebalance report

An exchange-hosted Securities Times report on that reshuffle put assets in funds tracking the STAR 50 above RMB170 billion. It described the STAR 50 as a broad-based benchmark, alongside separate thematic indexes focused on chips and AI. That figure describes the size of investment funds following the benchmark. Fund assets are separate from the companies’ combined market capitalization and from the value of shares changing hands each day. Rebalance report

The closing-price comparison also differs from using the highest price reached during a trading day. The index touched 2,255.25 on July 1 but closed lower that day. Comparing that intraday high with October 26 produces a decline of about 41.7%. The 40.4% calculation here uses closing values at both ends, separated by 118 calendar days. SSE prices

Cambricon’s profits outpace operating cash

Cambricon’s latest results show substantial business growth alongside the market retreat. Its unaudited third-quarter report, dated October 23, records nine-month revenue of RMB9.526 billion, up 106.8%, and profit attributable to shareholders of RMB3.715 billion, up 131.5%. Operating cash flow was RMB227.6 million, about 6.1% of that profit by calculation. That cash measure improved from a negative RMB29.3 million a year earlier. Cambricon report

Inventory rose to RMB11.665 billion at September 30 from RMB4.944 billion at year-end. Prepayments increased to RMB3.044 billion from RMB744.5 million. These asset balances identify substantial resources committed before completed sales. They do not establish that the stockpile is unsaleable. Bills and accounts payable, amounts still owed for purchases, rose to RMB6.793 billion from RMB1.116 billion. In the third quarter itself, operating activities used RMB83.7 million of cash. Cambricon report

In a separate October 24 statement, Cambricon said its operations were normal and demand for AI computing remained strong. The company described products spanning cloud and edge chips, accelerator boards, complete systems and software. It said gross margins had remained high and stable as sales expanded. The statement also put nine-month research and development spending at RMB1.225 billion, up 45.35%. Cambricon statement

SMIC, which makes chips for other companies, reported second-quarter revenue of $3.006 billion, up 36.1% from a year earlier. Gross margin, the share of revenue left after production costs, rose to 25.3% from 20.4%. It also generated $2.522 billion of operating cash, compared with $685 million in the preceding quarter. Its customers’ applications extended well beyond AI: consumer electronics accounted for 44.2% of wafer revenue, smartphones 16.9%, and industrial and automotive uses 16.5%. SMIC results

SMIC’s factories operated at 93.7% utilization, meaning that proportion of estimated quarterly capacity produced wafers. Management’s August outlook anticipated third-quarter revenue 2% to 4% above the second quarter and a 26% to 28% gross margin. It said AI-related demand was supporting chip manufacturing. Those expectations were guidance, not reported third-quarter results. It spent $1.836 billion on capital projects in the second quarter and said it would accelerate checks needed to put new manufacturing capacity into service. SMIC results

Investors disagree on the prospects for recovery

Fund manager Dong Baozhen characterized the preceding rally as speculative, Reuters reported. Lotus Asset Management investment chief Hao Hong warned the reversal could obstruct companies seeking listings. Other investors saw opportunities: Reuters said BNP Paribas Securities strategist William Bratton favored careful stock selection, while HSBC research showed Asian funds still allocated more to China than their benchmarks, despite recent selling. Goldman Sachs also retained Innolight and CXMT on an updated AI-stock recommendation list this month, Reuters reported. Reuters reporting

A separate Reuters market report on October 23 quoted RBC Wealth Management analysts attributing weakness to insufficient fiscal stimulus and disappointing earnings. They argued that incremental policy measures had provided less support than the large packages seen in 2024, and warned volatility could persist without new policy or technology catalysts. Reuters market report

Cambricon has given investors one concrete revenue threshold to watch. Its employee stock-incentive plan sets a 2026 sales target of at least RMB13.5 billion. Deducting the roughly RMB9.526 billion reported for the first nine months leaves about RMB3.974 billion to achieve in the final quarter. This is an incentive-plan target, not a promise to investors. Year-end results will show both progress toward it and whether additional sales bring stronger cash generation. Cambricon statement