China's stock market took a sharp hit on Thursday, with technology shares—especially those tied to artificial intelligence—leading the decline. The selloff came even as the U.S. Federal Reserve left interest rates unchanged, a move that typically supports riskier assets like stocks.
The Shanghai Composite ended the day down 0.8%, while the broader CSI 300 fell 1%. But the damage was far more severe in growth-oriented tech indexes: the ChiNext Composite dropped 4.4%, and Shanghai's STAR50 slid 4.3%. The CSI 5G communications index tumbled 7.4%, underscoring the breadth of the tech rout.
Why AI-linked stocks are under pressure
The sharp declines in AI-related names suggest that investors are growing skeptical about whether the sector's recent hype can translate into real, sustained profits. This is a key shift from earlier in the year, when AI optimism drove many tech stocks to lofty valuations.
One notable example: Yushu Technology, a robot maker also known as Unitree, fell 4.8% after reporting a drop in third-quarter net profit. The company's revenue rose 70% year-on-year in its first earnings report since listing, but the profit miss was enough to spook investors. This highlights a broader concern—that even fast-growing companies in the AI space may struggle to convert revenue into earnings.
UBS Investment Bank Research analyst James Wang noted that valuations for China's AI-hardware names are close to a historical trough. However, he added that those prices also "imply a major deceleration in earnings per share growth ahead." In other words, the market is already pricing in a slowdown, and that pessimistic starting point leaves little room for disappointment.
What this means for investors
For everyday investors, the key takeaway is that "cheap" stocks can keep falling if the market believes the earnings outlook is deteriorating. When valuations are already low, the usual cushion that comes from a low price-to-earnings ratio is thinner. Instead, day-to-day price movements tend to hinge on whether companies' earnings and guidance force analysts to revise their forecasts up or down.
This dynamic can lead to bigger, more mixed reactions across closely linked tech gauges in mainland China and Hong Kong—even on days when macro news, like a steady Fed, would normally feel supportive. The result is more headline- and earnings-driven volatility in China's AI-linked tech sector, with spillovers into Hong Kong's tech stocks.
As China tech stocks slide even as Fed holds rates steady, the broader market is watching to see if AI companies can deliver on their promises. The doubts about AI spending are not unique to China, but they are particularly acute there, where many tech firms are still in early stages of monetizing AI investments.
Looking ahead
Investors will be closely watching upcoming earnings reports from major Chinese tech companies to see if they can beat or at least meet expectations. If they do, it could help stabilize the sector. If they disappoint, the selloff could deepen.
For now, the market's starting point is pessimistic: investors are treating AI as a story that still needs to prove it can translate into steady profits, not just headlines. That means each quarterly update becomes a bigger test of whether expectations were too gloomy or not gloomy enough.
In the meantime, the Fed's decision to hold rates steady—which typically supports risk assets—was not enough to offset the tech-led decline. This suggests that for China's AI stocks, company-specific fundamentals are currently outweighing macro tailwinds.
As earnings worries persist, the market's focus is squarely on whether AI companies can turn their technological promise into financial reality. Until then, volatility is likely to remain high.
