Chinese Tech Stocks Plunge From 3 Year High To Correction In Just 5 Days

For those whose heads are still spinning from the furious speed of the recent plunge of the S&P into correction, here’s round two: overnight Chinese tech stocks extended their recent drop, and fell from a three-year high to the brink of a correction in just five sessions, fueled by a lack of positive surprise in earnings and rapidly cooling sentiment. The Hang Seng Tech Index dropped 3.8% on Tuesday, extending its slide from a March 18 high to nearly 10%. And if one goes back to the March 6 high, the Index is already in a 10% correction. The broader MSCI Asia Pacific Index declined as much as 0.4%, reversing a gain of 0.5%, dragged down by Chinese internet stocks Alibaba and Tencent who were among the biggest drags.

Xiaomi, which raised $5.5 billion in an upsized placement on Monday, tumbled 6.3%. The sale follows BYD’s $5.6 billion offering earlier this month. While the funding may benefit the companies over the longer term, shares are under immediate pressure due to increased supply and as they were sold at discount, analysts said.

Elsewhere, Alibaba fell nearly 4% following its chairman’s warning on a potential bubble forming in AI datacenter construction. While Alibaba has been investing heavily in artificial intelligence, chairman Joe Tsai said he was “astounded by the type of numbers that’s being thrown around” in the United States. 

“People are talking about $500 billion, several hundred billion dollars. I don’t think that’s entirely necessary. I think in a way, people are investing ahead of the demand that they’re seeing today.” He said he thought it was worrying when people began to talk about building data centers on spec, adding that he was  seeing “the beginning of some kind of bubble.”

Tsai’s comment chilled a world-beating rally in Chinese tech stocks which has rapidly reversed as the initial shock-and-awe from DeepSeek’s AI model wanes, with investors demanding more real-life applications – and actual results – before bidding up shares further. While the nation’s tech earnings mostly topped estimates or came in line in the just-concluded reporting season, such expectations were already baked in.

Earnings have been good so far, but they weren’t enough to bring “positive surprise,” said Steven Leung, an executive director at UOB Kay Hian Hong Kong Ltd. “Xiaomi’s upsized share placement has weighed on market sentiment today with some investors worrying about such offering creating pressure on market liquidity.”

Sentiment was further hurt by a Goldman report slashing its forecast for AI Servers “due to the combined reasons of product transitioning and uncertainties of demand and supply.” The bank now expects 19k/ 57k of rack-level AI servers (in 144-GPU equivalent) for 2025/ 26E, down from previously 31k / 66k in 2025/ 26E. Accordingly, the bank also revised down the target price of Quanta, Hon Hai, FII, Wistron, AVC, Auras, by 7%~21% (more in the full Goldman report available to pro subs).

Tuesday’s retreat bucks gains across most of Asia following signals from US President Donald Trump that the sector-specific and reciprocal tariffs expected on April 2 may be less daunting than feared. The Hang Seng China Enterprises Index fell 2.7%. 

Yet even with the week’s slide, the Hang Seng Tech gauge remains up more than 23% for the year, vastly outperforming US stocks. Investors have rushed to re-evaluate Chinese tech stocks since the rise of DeepSeek in January, with President Xi Jinping’s embrace of major business leaders also accelerating stock gains. 

That said, any further selloff will worry investors, and may potentially undermine a growing narrative that Chinese markets can become an alternative investment ground as investors reassess US exceptionalism.  

Another big decliner on Tuesday was Sunny Optical Technology Group, which plunged 10% after the company cautioned against a capacity glut. All 30 members of the Hang Seng Tech gauge ended in the red.

“Alibaba’s caution around a potential bubble in AI data center buildouts has added pressure, hinting that the red-hot AI theme may face a short-term bump,” said Charu Chanana, chief investment strategist at Saxo Markets.