- The STAR Market index has plunged over 40% from its July peak as concerns mount over returns on AI investments.
- CATL, a major battery manufacturer, has fallen 37% since the start of 2025.
- The sell-off in Chinese tech stocks continues as investors question how quickly AI spending can translate into profits.
- Despite valuations reaching multi-year lows, upside catalysts remain elusive for investors in the Chinese tech sector.
- In early 2024, ASML executives indicated they do not expect export licenses for their most advanced immersion systems for China, warning of a 10-15% hit to core China equipment sales.
- DeepSeek emerged in early 2025, initially fueling optimism that Chinese companies could challenge their U.S. counterparts in AI.
- However, this optimism has faded as investors are increasingly questioning how quickly companies can turn heavy AI spending into profits.
China's STAR Market index has seen a dramatic decline of over 40% since its peak in July, reflecting growing investor skepticism about the profitability of AI investments.1
The index, which tracks 50 major tech firms, has been particularly affected by concerns regarding the returns on AI spending.37
"I think the sell-off primarily started as a valuation correction and some profit taking, but now there is a critical look happening at whether earnings can justify the AI excitement," said Benjamin Cavender of China Market Research Group.
Major players like CATL, despite posting a 59% revenue growth in the third quarter, have seen their stock prices pressured, with net profit rising only about 15%.2
The broader economic context is troubling, as China's prolonged property downturn has diminished household confidence, while weak consumption continues to impact advertising and e-commerce sectors.
Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management, noted that investors are eager to see how tech giants will convert their AI investments into earnings, especially after initial public offerings attracted strong demand but later lost momentum.
Vey-Sern Ling, senior equity advisor at Union Bancaire Privée, warned that rising AI investments could further pressure near-term earnings, with long-term monetization prospects remaining uncertain.
Overall, while Chinese tech stock valuations have reached multi-year lows, limiting downside risk, the path to recovery remains unclear.4
“The sell-off began as a valuation correction and profit-taking, but now investors are critically examining whether earnings can justify AI excitement, said Benjamin Cavender of China Market Research Group. CATL, a battery giant, has fallen 37% since the start of the year, with its third-quarter revenue up 59% but net profit only 15%.”
CNBC
