Chinese hedge funds warn of ‘super bubble’ in the AI sector
Several leading Chinese hedge fund managers are sounding the alarm, suggesting that the international surge in AI stocks has grown into an unsustainable bubble. According to an investor note obtained by Bloomberg, Wealspring Asset – led by Yang Dong, who is known for predicting the 2007 market peak – described the current AI trend as a “super bubble” and warned that a stock market crash could be imminent. The Shanghai Banxia Investment Management Center likewise stated that the catalysts for the bubble to burst have already materialised, citing slowing revenue growth at Anthropic as a major concern.
That sceptical sentiment is shared across the broader sector. A report by CSC Financial from May showed that four other Chinese hedge funds had voiced doubts about AI investments. By contrast, only four funds remained optimistic, while seven others were neutral. These positions highlight a growing divide in how leading Chinese investors view the disruptive technology that is currently transforming global financial markets.
Although market leaders such as Micron Technology and SK Hynix have recently seen their value triple, the rally has been marred by sharp reversals as market participants become increasingly hesitant.
Wealspring, which manages more than €1.2 billion in assets, stated that many companies providing AI infrastructure lack sustainable competitive advantages. It described these companies as mediocre and too dependent on constant capital injections to sustain their growth.
The firm compared current market behaviour to the “reckless buying” seen during the 2007 bull market, and expressed surprise that demand alone could drive valuations to such extreme levels. Consequently, Wealspring warned that certain high-profile Chinese AI stocks could potentially plunge by more than 80%.
Banxia, which manages more than €255 million, focused on international warning signs. The firm expects Anthropic’s revenue growth to fall short of expectations, noting that rising token costs may deter major technology companies, while competitors poach software developers.
However, the cautious approach has come at a short-term cost. Both Banxia’s low-volatility macro fund and Wealspring’s Zhiyuan fund incurred modest losses in early 2024, despite remaining profitable over the long term. That stands in contrast to the broader market; the Chinese CSI Artificial Intelligence Index has risen by more than 35% this year, significantly outperforming the 5% gain in the main benchmark.
Even those gains are modest compared with South Korea’s Kospi, which nearly doubled thanks to the success of Samsung Electronics and SK Hynix. Despite these returns, Li Bei, founder of Banxia, continues to urge investors to exercise extreme caution before chasing AI stocks.
Business AM
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