China's AI bubble: hedge funds start taking profits

Updated on 17 July 2026

Chinese hedge fund managers are trimming positions in artificial intelligence-linked stocks after outsized gains, as Shanghai shares posted their steepest drop in three months.

The Shanghai Composite Index fell 1.85% on Thursday, 16 July, to close at 3,882 points, its lowest level in more than three months. Technology shares led the decline, coinciding with data showing China's gross domestic product grew at its weakest pace since late 2022, falling below Beijing's 2026 target range of 4.5% to 5%.

Shanghai Everlead Capital, whose Growth Strategy No. 3 fund had returned 164% through the end of May, trimmed holdings in advanced packaging and optical communications firms. Hunjin Capital's Yueyang G1 fund, up 33% over the first five months of the year, reduced exposure to memory-chip names, according to letters sent to investors.

Dan Bin, founder of Oriental Harbor Investment Management, which oversees more than 10 billion yuan, cautioned against getting swept up in market enthusiasm, arguing investors can profit from a period of exuberance without becoming part of it. His firm expects AI-related capital expenditure could slow during 2027.

Shanghai Banxia Investment Management Center had separately flagged a warning sign tied to slowing revenue growth among some downstream AI model developers.

None of the managers cited are forecasting a sector collapse. The moves are described as selective profit-taking rather than a broad retreat. Global cloud infrastructure spending tied to AI is expected to exceed $600 billion in 2026, up roughly 36%, according to sector estimates.

Sources: Bloomberg News, dispatch of 15 July 2026; Hedgeweek, article of 15 July 2026; Trading Economics, market data of 16 July 2026; investor letters from Shanghai Everlead Capital, Hunjin Capital and Oriental Harbor Investment Management, as cited by Bloomberg News.