China's technology stocks are losing their luster as investors question whether the country's artificial intelligence boom can deliver profits strong enough to justify lofty valuations.
The STAR 50 Index plunged over 40% from its July peak as concerns mount over returns on AI investments. The index tracks 50 of the largest and most liquid companies on Shanghai's technology-focused STAR Market — home to semiconductor, artificial intelligence and other high-tech firms.
Even battery giant CATL, long considered one of China's technology success stories, has come under pressure, falling 37% since the start of the year.
What started as profit-taking after a strong rally has turned into a broader reckoning over whether earnings can support current valuations.
"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.