The global AI market experienced a significant correction on June 5th, with the Nasdaq Composite Index plunging by 4.18%, marking the largest single-day decline since April 2025. The Philadelphia Semiconductor Index fell by 10.3% in a single day, recording its worst single-day performance since March 2020. Major AI and semiconductor companies suffered heavy losses, with NVIDIA dropping by 6.2%, Broadcom falling 7.92%, and TSMC declining 6.76%. Amazon fell by 3.08%, Meta by 5.54%, Microsoft by 2.65%, and Oracle by 9.65%. The correction has cast a chill on the frenzied market atmosphere that has characterized the AI boom since the first half of 2025, with recent analysis suggesting this represents a late-stage phase of a liquidity-saturated expansion cycle rather than the beginning of a clean expansion cycle.
China is experiencing a massive surge in venture capital investments, with startups in sectors such as commercial space, quantum computing, nuclear fusion, robotics, hydrogen energy and brain-machine interfaces attracting billions of yuan despite having little or no revenue, according to Reuters. This investment frenzy comes as Beijing intensifies efforts to narrow the technology gap with the United States by prioritising what it calls 'strategic emerging and future industries'. The government's latest five-year plan identifies these sectors as key pillars of future economic growth. However, recent market analysis reveals that markets have stopped valuing companies primarily on realised cash flow and begun valuing them on projected ecosystem dominance inside an assumed future economic architecture, fundamentally changing how capital allocation decisions are made.
The rapid appreciation in startup valuations has prompted concerns that excessive optimism could be creating a bubble, as reported by Reuters. Industry participants have pointed to dramatic increases in valuations across sectors such as photonic chips and satellite technology within a matter of months, raising questions about whether future public listings will justify current investment prices. According to Reuters, a photonic chip project was worth 1 billion yuan last year, and is now worth 10 billion, while a rocket satellite project was valued at 5 billion at the start of the year and is now worth 20 billion. Recent analysis suggests this represents reflexive liquidity rather than traditional demand expansion, with server farms financed before demand fully exists, GPU hardware funded using assumptions extending years beyond realistic technological obsolescence, and private companies with minimal profitability attracting sovereign-scale capital inflows. The current AI bubble is characterized by debt becoming easier to justify, duration assumptions stretching, depreciation schedules becoming flexible, and profitability becoming narrative-dependent.
According to Reuters, venture capital and private equity investments in China reached ₹620 billion during the first five months of 2026, representing a nearly 60% increase from the same period last year, citing data from ChinaVenture Investment Consulting. The pace of fundraising has also accelerated sharply, with newly registered venture capital funds totalling ₹154 billion during the first five months of the year, already exceeding the full-year total recorded in 2025, as reported by China's fund industry association. While most venture capital deals involve local, yuan-denominated funds amid the intensifying Sino-American tech rivalry, five China-focused dollar-denominated funds raised a combined $4 billion as of June 12, already exceeding the annual total for each of the past two years, according to Preqin data. This represents a fundamental shift where capital expenditure stops behaving cyclically and revenue increasingly circulates within tightly interconnected financing loops, with the same firms providing infrastructure also indirectly funding the customers purchasing it.
The sharp decline on June 5th represents a self-correction of the market for misallocation of funds, according to market analysis. A highly round-about production structure has caused serious misallocation, with the market pre-laying out production capacity based on long-term optimistic expectations while cloud providers and technology companies hoard GPUs and reserve storage resources on a large scale. The improvement of AI production capacity may far exceed real downstream demand, creating a contradiction that continues to accumulate misallocation of funds. However, recent analysis suggests this is not a clean expansion cycle but the late-stage phase of a liquidity-saturated one, with bond yields remaining elevated despite slowing economic momentum, gold continuing to make new highs, and speculative assets becoming increasingly volatile. The current AI bubble is still at a relatively controllable level compared to the 2000 Internet bubble, as major listed companies in the current AI track all have relatively stable cash flows, with NVIDIA's current price-to-earnings ratio at 31.8 times, Microsoft at 24.5 times, Google at 27.7 times, and Amazon at 29.3 times. However, the real risk isn't necessarily recession but repricing, with markets appearing vulnerable to credit conditions tightening enough to expose how dependent growth was on cheap capital.
One example of the ambitious fundraising strategy is Shanghai-based Tectronic Maritime Space Systems, a startup established just three months ago that aims to launch rockets from the sea, as reported by Reuters. The company is seeking to raise ₹150 million ($22 million) at a valuation of ₹1.5 billion and plans to raise another ₹3 billion over the next five years before targeting a public listing by 2032 at a projected valuation of around ₹50 billion, more than 30 times its current valuation. Finance manager Gu Mei told roughly 50 venture capital investors that "Demand is inelastic, supply is limited and the clock is ticking," with investors participating in the current round expected to get returns of 26.7 times. Intense competition is emerging in sectors such as quantum technology, embodied AI and nuclear fusion, with many funds racing to secure deals amid fears of missing out on the next breakthrough company. Recent analysis suggests this represents the late-stage acceleration phase before financial gravity returns, with the question being whether today's financial system can survive the scale of speculative capital currently attached to AI monetisation expectations.
