Michael JohnsonOn October 26, Reuters reported that China’s STAR50 index, which brings together leading AI and semiconductor companies, had fallen about 40% in less than four months. The agency estimated that the market had shed roughly $480 billion in value over that period. Share prices reflect investors’ expectations for future revenue and risks, so the sell-off signals a shift in market expectations, not a direct measure of AI adoption.
Reuters’ October 26 report said the decline affected companies across the supply chain, from chipmakers to suppliers of data-center components. Among the factors cited by market participants, the agency listed high company valuations, questions about AI demand, and the threat of restrictions on supplying Chinese equipment to data centers. Traders did not identify a clear single trigger for the sell-off.
Valuations amplified the decline
In September, the STAR50 fell 9.17% over the month but remained up 13.82% year to date in 2026, according to Shanghai Stock Exchange statistics. The exchange reported a price-to-earnings ratio of 99.48, calculated using the previous year’s annual reports and excluding loss-making companies. This was the STAR50’s valuation at that time, not a measure of the value of all Chinese AI companies.
Reuters put the STAR50’s ratio at roughly 100 times annual earnings after it fell from a peak of about 250; the agency gave the Nasdaq 100’s ratio as around 30. This comparison illustrates the difference in valuations, although the indexes differ in composition and company-inclusion rules. A company’s own revenue, earnings, and forecasts matter when assessing an individual business.
Risk runs through the supply chain
Dependence on major customers’ plans to build computing capacity ties component manufacturers to investment in AI infrastructure. Concerns about export restrictions affect expectations for available sales markets. Reuters reported that optical-component makers Zhongji Innolight and Eoptolink had fallen about 60% from their June and July peaks, while memory-chip maker CXMT had lost more than a quarter of its value in a month.
Companies buying equipment or evaluating suppliers can benefit from checking operating metrics and financial expectations separately. Key questions include the share of revenue from AI infrastructure, customer concentration, production capacity, confirmed orders, and reliance on international supplies. Market capitalization reflects changing investor sentiment; contracts and financial reports help assess the business itself.
What the sell-off shows
According to Goldman Sachs data cited by Reuters, AI stocks accounted for 42% of China’s market capitalization and 57% of stock trading turnover in mainland China and Hong Kong. The agency also reported that a broad Chinese index had fallen about 20% from its June peak. With this level of concentration, changes in technology-company valuations can significantly affect overall market indicators and access to capital.
To assess a specific business, investors and buyers should track whether infrastructure investment is turning into confirmed orders, revenue, and earnings, and how dependent the company is on exports and a limited number of major customers. The STAR50 decline provides context for market risk; a supplier’s resilience is better assessed using its own operating and financial data.
