While investors and policymakers in the United States debate whether the artificial intelligence sector is overheating, evidence from China suggests that the bubble has already deflated. The Chinese AI market, once a hotbed of innovation and capital, has seen a dramatic reversal, with many of its most prominent players suffering severe losses.
China's AI Market: A Sharp Correction
Publicly traded Chinese AI companies have been hit hard. MiniMax, which listed in Hong Kong in January, has plunged over 84% from its all-time high, closing at $161 on Friday. Similarly, Z.ai, a company developing models comparable to Anthropic and ChatGPT, ended the week at $483, down more than 80% from its peak. The decline accelerated after the company sought to raise $5 billion from investors.
Even the largest players have not been spared. CXMT, a memory solutions provider, has fallen to $41.80 from a record high of $61. Alibaba has dropped to $97 from a high of $185 earlier this year. Other tech giants like Tencent, Xiaomi, and Lenovo Group have also slumped in recent months.
Parallels with the EV Industry
The trajectory of China's AI sector mirrors the country's electric vehicle (EV) industry. At its peak, China had over 600 EV companies vying for global dominance. Today, many have disappeared, and the survivors—Li Auto, XPeng, BYD, and Polestar—are struggling, with their shares down by double digits this year. The intense competition has sparked a price war that has eroded margins across the sector.
US AI Companies Face Similar Risks
Across the Pacific, US AI companies are encountering comparable challenges. OpenAI recently completed a fundraising round of $11 billion, well below its target of $30 billion, and its valuation was cut from $1.4 trillion to $1.25 trillion. Major AI stocks have also declined: Nvidia fell to $200 last week from a year-to-date high of $243, and Micron dropped to $884 from $1,255.
Neocloud companies such as CoreWeave, Nebius, IREN, MARA Holdings, and Riot Platforms have been hit hardest. Elon Musk has warned that over 200 neocloud firms could collapse due to funding issues. Indeed, bond yields for CoreWeave have soared above 15%, and Anthropic is expected to receive a junk rating if it goes public, according to Blackstone.
Investor pushback on valuations is growing. Australian company Firmus pulled its IPO after investors complained about its valuation, and Nscale is expected to list at a much lower valuation than initially anticipated.
The Competitive Landscape
The AI industry is becoming increasingly competitive, both in the US and globally. In the US, companies like Meta Platforms, SpaceX, Alphabet, Perplexity, Anthropic, and OpenAI are all vying for market share. They will also face competition from Chinese firms such as Moonshot, DeepSeek, and Z.ai. This intense rivalry, reminiscent of the EV price wars, is putting pressure on margins and raising questions about the sustainability of current valuations.
As the AI bubble shows signs of deflating, investors are closely watching for further cracks. The lessons from China's EV and AI sectors suggest that a shakeout may be inevitable, with only the strongest players surviving.
This article is for informational purposes only and does not constitute financial advice.
