China's artificial intelligence (AI) sector experienced a substantial rally in the first half of 2026, with key technology indices posting some of their strongest gains in recent years. The SSE Star 50 index, which tracks leading tech firms, surged approximately 65% from January through June, driven largely by advances in semiconductor manufacturing, optical modules, and AI infrastructure companies.
Among the notable performers in the chip industry were Cambricon Technologies, which briefly surpassed a market capitalization of 1 trillion yuan (about HK$1.2 trillion), and Hygon Information Technology and Moore Threads, both of which reported significant revenue growth. These results have highlighted robust domestic demand for AI chips and related computing technologies within China.
Despite the impressive rally, investor sentiment has become increasingly cautious amid concerns over valuations and the sustainability of growth in the sector. U.S. hedge fund manager Michael Burry, known for his bearish bets ahead of the 2008 financial crisis, voiced skepticism about the durability of the AI market’s momentum. In a recent post, Burry disclosed expanding his short positions in several U.S.-listed AI-related companies, including Nvidia, Tesla, Applied Materials, the iShares Semiconductor ETF, and Caterpillar. He pointed to inflated semiconductor valuations and questioned the long-term viability of current investment patterns in the AI space.
This shift in outlook reflects broader uncertainties as market participants scrutinize whether the record capital expenditures seen across the AI industry will translate into sustained profit gains in upcoming earnings reports. A recent analysis by Morgan Stanley further underscored this cautious stance, warning that aggressive spending on AI projects in China may begin to weigh on corporate profitability, calling attention to the efficiency with which these investments are being deployed.
The divergence between strong first-half earnings momentum in China’s AI sector and growing wariness among global investors illustrates the mixed signals in the market. While domestic demand and technological progress have boosted valuations, concerns remain about whether the rapid pace of investment can be justified by future returns. As companies release further quarterly results in the coming months, investors are expected to continue reassessing the outlook for AI-related assets worldwide.