A-Share Market Pullback Pressures AI Sector: Assessing Investment Risks in Tech Stocks

Three Major Indices Retreat as AI Sector Fails to Buck the Trend

On April 28, the A-share market underwent a notable correction, with all three major indices closing lower. By the close, the Shanghai Composite Index fell 0.19% to 4,078.64 points; the Shenzhen Component Index dropped 1.10% to 14,830.46 points; and the ChiNext Index slid 1.43% to 3,596.71 points, marking its fourth consecutive daily decline. Combined turnover across the Shanghai, Shenzhen, and Beijing exchanges totaled 2.55 trillion yuan, shrinking by 54.3 billion yuan from the previous trading day — a clear sign that wait-and-see sentiment was intensifying.

Amid the broad-based pullback, the AI concept sector, which had posted significant gains in earlier sessions, was not spared. Multiple AI-related stocks declined to varying degrees, with some high-flying names even hitting the daily limit-down.

Limit-Down AI Stocks: Opportunity or Trap?

A closer look at the day's trading reveals that AI concept stocks hitting the limit-down or suffering sharp losses generally fell into the following categories:

Category 1: Overheated "pure concept" plays. These stocks lack meaningful AI-related revenue. After being bid up sharply by speculative capital in the short term, they face severe correction risks once market sentiment turns cold. For such names, hitting the limit-down is often not a "bargain-hunting opportunity" but rather a signal of risk unwinding.

Category 2: Companies with genuine AI fundamentals but excessive valuations. Some companies do have real exposure to large language models, AI applications, or computing infrastructure, but their valuations have been pushed far beyond reasonable levels by earlier capital inflows. During market corrections, valuation mean-reversion is highly likely.

Category 3: Sub-sectors hit by industry-specific headwinds. This includes certain AI hardware supply chain companies affected by uncertainties in international trade policy, as well as AI application companies facing slower-than-expected commercialization progress.

The Deeper Logic Behind the Low-Volume Correction

This pullback did not come without warning. From a technical perspective, the ChiNext Index has posted four consecutive daily declines, and short-term moving averages are showing signs of weakening. From a liquidity standpoint, the 54.3 billion yuan drop in turnover indicates waning bullish conviction, while bearish forces are gaining ground.

From a fundamental perspective, the AI industry is currently at a critical stage of "expectation realization." Since the start of 2025, domestic large language models represented by DeepSeek have achieved continuous breakthroughs, fueling intense enthusiasm for the AI value chain. However, as Q1 earnings reports are gradually disclosed, investors are paying closer attention to companies' actual profitability and the real conversion rates of their AI businesses. The market is transitioning from a "storytelling" phase to a "show-me-the-earnings" phase, and divergence is inevitable during this shift.

Additionally, overseas market volatility is spilling over into A-shares. Recent turbulence in U.S. tech stocks, uncertainties surrounding global AI regulatory policies, and chip export controls are all suppressing market risk appetite to some extent.

A Rational Assessment: Which AI Themes Deserve Attention

Despite short-term pressure, the long-term growth trajectory of the AI industry remains intact. For investors, the market correction actually provides a window to reassess portfolios and optimize allocations. The following themes are worth continued monitoring:

Computing Infrastructure: Regardless of how the AI application layer evolves, demand for computing power remains inelastic. Leading companies in domestic GPUs, AI servers, and liquid cooling solutions may present medium- to long-term value if they become oversold during the broader market pullback.

AI Application Commercialization: Companies that can achieve closed-loop commercialization in vertical sectors such as finance, healthcare, education, and manufacturing offer stronger earnings visibility. Focus on those already generating real AI revenue with sustained growth.

Data Elements and Security: As AI deployment scales up, data governance and information security are becoming increasingly important, with related policy dividends expected to continue materializing.

Risk Warnings and Outlook

It is crucial to emphasize that buying limit-down stocks is inherently a high-risk strategy, especially during a period of weak market sentiment and declining volume. Blindly "catching falling knives" could lead to further losses. Investors should keep the following in mind:

• Beware of liquidity risks: In a low-volume environment, some small- and mid-cap AI stocks may experience liquidity dry-ups, making it difficult to exit positions.
• Focus on earnings validation: The Q1 earnings disclosure period is a critical window for testing the substance behind AI concept stocks. Names that miss earnings expectations may face continued pressure.
• Manage position sizing: Until the trend becomes clearer, maintain reasonable position sizes and avoid excessive concentration in a single sector.

Overall, the A-share AI sector is experiencing the growing pains of transitioning from "thematic speculation" to "value investing." The short-term correction does not signal the end of the AI rally, but rather represents a rational recalibration of previously overheated expectations. AI companies with genuine technological moats, commercialization capabilities, and earnings support are likely to enjoy healthier upside potential once the adjustment runs its course. Investors should remain patient, anchor decisions to fundamentals, and seek certainty amid volatility.