China’s AI bubble has burst. Could the US be next?

Key Takeaways

• China’s AI and chip index has lost 40% of its value in under four months.
• Even after that fall, Chinese AI shares still trade at expensive multiples.
• US AI funding keeps growing, with customer revenue yet to catch up.

How far have China’s AI stocks fallen?

China’s AI stocks have suffered the kind of fall that investors elsewhere are still debating. The STAR50 index, which includes major chipmakers and AI companies, dropped 40% in less than four months, wiping out around US$480 billion in market value (Reuters, 26 October 2026). By 26 October, the country’s blue-chip index was also down about 20% from its June high.

The losses have been severe among some of the market’s most popular names. Robot maker Unitree lost half its value after listing in August. Chipmakers MetaX and Moore Threads also halved from July, after debut gains of 700% and 400% respectively last year (Reuters, 26 October 2026). Concerns about demand and possible restrictions on Chinese suppliers helped undermine a market where investors had already pushed prices to extraordinary levels.

Even after those falls, the STAR50 was trading at around 100 times its past year’s earnings, down from nearly 250 times. Reuters put the Nasdaq 100 at around 30 times earnings. China’s boom clearly reached more extreme valuations, so its experience does not mean an identical fall is coming to the US. It does show how far prices can drop while still looking expensive.

Not every investor reads the selloff as a warning. Asia funds in general remain overweight China even after three months of net selling, according to HSBC research cited by Reuters, 26 October 2026.

What are US companies still committing to AI?

Meanwhile, American companies continue to seek huge amounts of money for AI. NPR’s 1A programme this week highlighted Anthropic’s filing for a public listing, US$40 billion in financing secured by SpaceX to lease AI chips, and Meta’s efforts to raise US$95 billion for its AI buildout (NPR 1A, 28 October 2026; CNBC, 26 October 2026). That is roughly US$235 billion committed in a single day.

For now, that spending supports orders for chips and construction of data centres. The concern is what happens if paying customers do not generate enough revenue to justify the cost. Building more capacity is a commitment made today against demand expected years into the future. If those expectations prove too optimistic, companies could be left competing for business at prices below what they originally planned.

A slowdown could then spread through the businesses supplying that expansion. A company cutting its AI budget would mean fewer orders for its suppliers, which may have committed money to their own growth. Falling share prices could also make fresh funding harder to obtain. That would put more pressure on businesses still relying on investors to cover their costs.

AI can become more useful while competition makes it harder to earn the profits investors expect. Cheaper services would benefit customers, but shareholders who paid for years of strong growth could have a different experience. China’s losses give US investors a reason to look more closely at the earnings behind the next large funding announcement.

What it means for investors

Bullion has not sat outside the AI trade. Gold and silver fell alongside chip stocks in mid-October 2026 as yields and the US dollar climbed (Ainslie Bullion, 16 October 2026). Ainslie Bullion holds physical gold and silver under Australian jurisdiction, for investors weighing how much of a portfolio rests on one set of earnings expectations.

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This article is general information only and does not constitute financial advice. Past performance is not indicative of future results. Always conduct your own research or consult a licensed financial adviser before making investment decisions.