AI Stocks in China Face Mixed Outlook in 2026
China's artificial intelligence (AI) stocks entered the second half of 2026 with a positive earnings momentum, but growing skepticism about the sector is starting to affect investor sentiment. The first-half results and high-profile bearish positions taken by US investors regarding the global AI trade have begun to weigh on market confidence.
Michael Burry, a well-known US hedge fund manager, expressed his concerns in a post on Substack on Tuesday. Burry, who gained fame for shorting the American housing market before the 2008 financial crisis and whose story was later popularized in the 2015 film The Big Short, warned about what he sees as stretched valuations in AI-related markets. He mentioned that he had expanded his bearish positions across US-listed AI-linked assets, including Nvidia, Tesla, Applied Materials, the iShares Semiconductor ETF (SOXX), and Caterpillar. His concerns revolve around elevated semiconductor valuations and the sustainability of the current investment cycle.
This has added to a growing wave of skepticism towards the global AI trade, as investors reassess whether the record capital outlays across the sector will translate into durable earnings growth during the ongoing first-half earnings season.
Strong Performance in China’s Technology Sector
Meanwhile, China's technology sector showed a strong rally in the first half of the year. The SSE Star 50 index surged roughly 65 per cent during the January-to-June period, marking one of its strongest half-year performances on record. This was driven by gains in semiconductors, optical modules, and AI infrastructure names.
Within the chip sector, Cambricon Technologies briefly crossed the 1 trillion yuan (US$147 billion) market capitalisation threshold, while Hygon and Moore Threads reported sharp revenue acceleration. These developments underscored robust domestic demand for AI chips and related computing infrastructure.
However, the rally has faced increasing scrutiny. A recent report from Morgan Stanley pointed to rising skepticism over the efficiency of China's AI-related capital expenditure. The report warned that aggressive spending could begin to weigh on profitability. It also highlighted signs of overheating in parts of the technology sector.
"With AI and tech running very hot, regulators clearly prefer a 'slow bull' to a speculative melt-up," said the report, led by China equity strategist Laura Wang and chief China economist Robin Xing. The report added that state-backed investors had been seen selling ETFs in an effort to moderate sentiment.
Warnings from Major Financial Institutions
UBS struck a similar tone in a June report, warning that China's AI hardware stocks could be approaching a peak. It pointed to concentrated institutional positioning, elevated valuations, an accelerating number of initial public offerings, and sustained sector-wide capital expenditure as indicators of late-cycle dynamics.
Performance divergence across markets has also remained pronounced. The onshore CSI 300 rose 7.6 per cent in the first half, supported by AI hardware names, while Hong Kong's Hang Seng Tech Index fell 19 per cent, weighed down by its heavier exposure to internet platform companies with limited direct exposure to the AI hardware supply chain.
Sharp Correction in Chinese Technology Stocks
Chinese technology stocks saw a sharp correction on Thursday. The Star 50 index fell 7.7 per cent, the ChiNext Index dropped more than 5 per cent, and the Shanghai Composite declined over 2 per cent. AI computing hardware and semiconductor names led the broader pullback.
This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.
Copyright (c) 2026. South China Morning Post Publishers Ltd. All rights reserved.
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