Investors are piling into China's tech, media and telecom shares, with speculative bets on chatbot development crowding out other sectors in a scenario that offers a stark contrast with global caution.
Mainland China computer, communications equipment and media indexes have surged between 29% and 35% this year, outstripping a rise of just 3.5% in the benchmark CSI 300 Index.
On some days, including several last week, turnover in tech, media and telecom (TMT) stocks made up more than 40% of total market trade, according to China Merchants Securities' research, for a record concentration of trading volume.
Investors say they are buying in hope that bots similar to Microsoft's ChatGPT can revolutionise the sector, cut costs and open up new paths to growth.
But as fear of missing out kicks in to extend the rally to new heights, analysts worry gains can turn unstable, and there are already some signs it is distorting markets.
"In the stockmarket, AI will be an epic opportunity," said Niu Chunbao, a fund manager at Wanji Asset Management who worried he was missing the rally and bought AI stocks in recent weeks, after cutting exposure to new energy in February.
Data compiled by Cinda Securities showed exchange-traded funds are getting cash, too, with TMT-focused funds drawing net inflows of 4 billion yuan ($580 million) over the past three months, among the largest such buying in any sector.
But as broader market gains falter, with doubts swirling over the robustness of China's recovery from the COVID-19 pandemic, the frenzy is sucking up enough money to pose wider risks.
A February warning in state media has not stopped the trend.
"The siphon effect of the TMT sector has become increasingly obvious," said Guosheng Securities analysts in a note, while others pointed to fundamentals that appear shaky.
An eye-catching tripling in the share price of chipmaker Cambricon Technology Corp has driven its market value above $10 billion, despite the company reporting losses since 2017.
Beijing Haitian Ruisheng Science Technology’s shares have quadrupled, even as the AI training data provider cautioned investors it did not see substantial order growth brought by artificial intelligence-generated content (AIGC).
"The AIGC trade is obviously overheated," said Yao Pei, chief strategist at Hua Chuang Securities.
Still, with China's government supportive of technology development, some think winners will eventually emerge, even if there is a washout in the market first.
"Most companies that surged in the frenzy are junk stocks, which lack long-term value, and the investments are merely Ponzi schemes," said Yuan Yuwei, fund manager at Water Wisdom Asset Management.
"The junk shares will certainly slump, then we will see real industry leaders emerge."