Many people have long predicted that the AI bubble will pop. Indeed, the AI bubble has already burst, and taken a good chunk of the stock market with it…in China.
Stocks on China’s mainland have lost about $2.4 trillion in market value, the total worth of all their shares, since May, as investors lose faith that Beijing’s AI boom will ever turn a profit.
That is more than South Korea’s entire economy produces in a year.
AI companies now make up 42% of the market value of Chinese shares listed on the mainland and in Hong Kong, and 57% of trading, according to Goldman Sachs. So when AI stocks fall, the whole market falls with them.
The CSI 300, an index of China’s 300 biggest listed companies, entered a bear market on October 22, meaning a drop of at least 20% from its peak.
The sharpest damage hit Shanghai’s STAR 50, an index of 50 large tech and chip companies. It fell 40% in less than four months, erasing about $480 billion.
It still trades at roughly 100 times earnings, a ratio that shows how many years of current profit investors are paying for, down from nearly 250 at its peak. The Nasdaq 100, the U.S. tech benchmark, sits around 30.
100 P/E ratio is an insanely high valuation. Right now Nvidia, a real company that sells real chips to AI companies, has a P/E ratio just over 27. Berkshire Hathaway, one of the most capitalized non-tech companies in the world, has a P/E ration of 14.8.
DeepSeek, a Chinese startup, released a cheap and powerful chatbot in January 2025, and Nvidia, the U.S. company whose chips power most AI, lost nearly $600 billion in market value in a single day. Moonshot AI’s Kimi K3, also produced by a Chinese AI lab, sent chip stocks tumbling again in July.
Beijing then pushed its tech giants toward homegrown chips: According to the Financial Times, its internet regulator reportedly told companies including ByteDance and Alibaba to stop buying Nvidia chips in September 2025. Z.ai, a Beijing lab, says it trained its GLM-5.2 model entirely on Huawei chips.
Analysts blame weak spending by Chinese consumers and doubts that AI companies can earn back what they have invested. Robot maker Unitree drew retail orders for 8,000 times the shares on offer when it listed in August, and its stock has since lost almost half its value since launch even after a significant recovery this week.
Having 42% of your stock market’s value tied to AI companies seems extremely dangerous from the git-go. Thank God the American stock market isn’t so dependent on one sector. Oh, wait. This report in April says that 45% of the S&P 500 value is in AI-linked stocks.
And the biggest AI IPOs haven’t even happened yet.
But back (for the moment) to China. China’s economy has long been shell games all the way down, and there’s no way at this remove to figure out which Chinese AI companies are real and which outright scams. What real growth China has enjoyed is largely attributable to making goods to sell to Americans (and on the world market), but I don’t see terribly many Americans trusting their data to Chinese AIs over American models. (And I don’t even trust American AI companies.)
A whole lot of gloom and doom news has been coming out of China, with factories closing to vacancies across Shanghai to unemployed young people pretending to still go to work to avoid telling their family they lost their job. China’s stock market has lost $2.4 trillion, but at such elevated PE ratios, it still has a long way way to drop to seem rational.
American AI-linked companies have their own issues, but Nvidia, Broadcom (P/E 43.5), Alphabet/Google (16.5) and Microsoft (29.4) aren’t trading at nearly the insane multiples Chinese companies are. Even if the American AI bubble bursts (as it almost certainly will), they don’t have nearly as far to fall. That may change if Anthropic and OpenAI pull the triggers on their long anticipated IPOs. The Dotcom Bust meant about $5 trillion in stock losses (or just under 60% of the 8.45 trillion President AutoPen added to the national debt), and an AI bust would likely be around the same scale, if not worse.
If I were to consider investing in the stock market right now, I might consider American companies that actually make physical goods…
