China's AI Stock Bubble Has Burst, Report Says

A new analysis argues that China's artificial intelligence stock rally has already ended, with the resulting bubble now deflating rather than inflating further. The claim comes amid growing concern that Chinese equities linked to AI could be heading into a difficult and potentially prolonged downturn.

Central to this view is a marked deterioration in earnings forecasts across Chinese companies. As analysts revise their profit expectations downward, investor confidence in previously high-flying AI-related stocks appears to be weakening. Falling earnings forecasts are typically interpreted as a signal that underlying business conditions are softer than markets had priced in, prompting a reassessment of valuations that had climbed sharply during the AI enthusiasm of recent years.

At the same time, so-called National Team funds — a term used to describe state-linked investment vehicles widely believed to intervene in Chinese markets during periods of volatility — have reportedly drawn their largest inflows since the earlier trade war-era market rout. This surge in state-directed buying suggests that authorities may once again be stepping in to cushion the broader market, even as specific AI-linked segments struggle.

The parallel between the current situation and the trade war period is notable. That earlier episode, marked by escalating tensions between China and other major economies, triggered sharp sell-offs that prompted similar interventions. The fact that National Team funds are now seeing comparable inflow levels implies that officials view the present downturn as serious enough to warrant a significant policy response.

Taken together, the two developments — falling earnings forecasts on one hand, and heavy state-backed buying on the other — paint a picture of a market in transition. While the AI-driven rally that lifted Chinese equities appears to have run its course, the scale of National Team intervention suggests that policymakers are keen to prevent the downturn from spiralling into a broader rout across the wider stock market.

It remains to be seen whether such support will be enough to stabilise sentiment, or whether the deteriorating earnings outlook will continue to weigh on valuations despite official efforts to shore up prices.