Chinese technology stocks are enduring their worst stretch in a quarter century, with the MSCI China Index tumbling 15% in 2026 — its worst global performance after Indonesia — as investors grow increasingly skeptical that the country's tech giants can monetize artificial intelligence. The index last week traded at the lowest level relative to MSCI's world index since the aftermath of the September 11, 2001 attacks, according to Bloomberg.

The two largest components of the index — Tencent and Alibaba — have each plunged more than 29%, wiping out a combined $337 billion in market value.

Tencent has responded to the rout by aggressively repurchasing its own shares. The company has spent more than HK$9 billion ($1.1 billion) on buybacks in June alone, on track for its largest monthly repurchase this year, according to Bloomberg calculations cited by Moneycontrol. The Shenzhen-based firm has bought back shares on nearly every trading day since mid-May, when it reported revenue growth of 9% in the first quarter of 2026 — its slowest pace in six quarters.

Alibaba, meanwhile, reported its first quarterly operating loss since 2021 in its March quarter results, with a loss from operations of RMB 848 million, compared with income of RMB 28.5 billion a year earlier. Core profitability, measured by adjusted EBITA, fell 84% year-on-year as the company poured money into AI and e-commerce.

The selloff reflects a growing disconnect between the scale of AI investment pledged by Chinese tech firms and their ability to generate returns from it. Tencent said in March it plans to more than double investments in new AI products in 2026, while Alibaba committed to spending at least 380 billion yuan ($52 billion) on AI and cloud infrastructure over three years — more than its total spending in the category over the past decade.

Yet multiple headwinds are complicating the path to AI monetization. U.S. export restrictions continue to limit Chinese access to advanced semiconductors. Anthropic has accused entities linked to Alibaba of conducting the largest known AI distillation attack against its models. And a Bloomberg report that China plans to spend roughly 2 trillion yuan on state-backed data centers has raised fears of pricing pressure on private cloud providers.

The weakness in Chinese equities has coincided with a global tech selloff that began in late June, driven by concerns over AI valuations and leveraged fund selling. South Korea's Kospi plunged 10% on June 23, triggering a circuit breaker, while the Nasdaq Composite finished that week down 4.5%. The Hang Seng China Enterprises Index has entered a technical bear market, falling more than 20% from its October peak.

China's securities regulator has vowed to crack down on speculative AI-related stock activity, with CSRC Chairman Wu Qing warning authorities will "thoroughly investigate and penalize" those exploiting technology themes to manipulate markets.