China's Tech Stocks Plummet Amid Artificial Intelligence Concerns

China's tech stocks have faced a major sell-off as investors doubt whether artificial intelligence spending will yield sufficient profits and question high valuations. While the STAR 50 Index, which has fallen more than 40 percent from its July peak, is at the center of this downturn, shares of battery giant CATL have also lost 37 percent of their value since the beginning of the year.

Artificial Intelligence Investments and Valuation Scrutiny

The tech rally in China gained momentum with the emergence of DeepSeek in early 2025, fueling optimism that domestic companies could challenge their U.S. competitors in artificial intelligence infrastructure. However, this optimism weakened as investors questioned how quickly heavy artificial intelligence spending could be converted into profits. Benjamin Cavender from China Market Research Group stated that the sell-off initially began as a valuation adjustment and profit-taking, but has now turned into a critical examination of whether earnings can support the artificial intelligence excitement.

Impacts of the Real Estate Crisis and Consumption

The pressure on the markets was not limited to the tech sector; China's prolonged real estate crisis has weakened household confidence, while weak domestic consumption continues to negatively impact the advertising and e-commerce arms of major internet platforms. Although battery manufacturer CATL recorded revenue growth of around 59 percent in the third quarter, the limitation of its net profit increase to 15 percent showed that the gap between growth and profitability has widened. Strategists emphasize that for a sustained recovery, earnings must stabilize, artificial intelligence spending must deliver net returns, and domestic demand must strengthen.