Chinese technology stocks have experienced a steep decline lately, erasing gains from a three-year high in just five sessions. The Hang Seng Tech Index dropped as much as 4.1% on March 25, 2025, marking a decline of over 9% since its March 18 peak, as quoted on a Bloomberg article.

KraneShares CSI China Internet ETF (KWEB Quick QuoteKWEB - Free Report) has lost 6.5% over the past week.Invesco China Technology ETF (CQQQ Quick QuoteCQQQ - Free Report) has retreated 7.6% during the same period. iShares China Large-Cap ETF (FXI Quick QuoteFXI - Free Report) is also off 5.3% over the past week.

Xiaomi’s Share Sale Pressures Market

Xiaomi Corp.’s $5.5 billion upsized share placement weighed heavily on investor sentiment, with the stock dropping as much as 6.6%. Analysts suggest that concerns over market liquidity and increased supply have contributed to the slump.

Xiaomi’s share sale follows a similar move by BYD Co., which raised $5.6 billion earlier this month. While these capital raises may benefit the companies in the long term, the immediate impact has been downward pressure on stock prices due to the discounted offerings.

Alibaba Warns of a Potential Bubble

Alibaba Group Holding Ltd. fell more than 3% after its chairman raised concerns about a potential bubble forming in the AI-driven data center sector. The warning has added to investor concern, prompting further selloffs in the sector.

“The AI-driven rally is facing a short-term setback,” said Charu Chanana, chief investment strategist at Saxo Markets, as quoted on Bloomberg. Alibaba’s warning triggered worries that the sector’s rapid growth may not be sustainable.

AI Enthusiasm Fades, Earnings Fail to Impress

Chinese tech stocks recently experienced a strong rally, thanks to the excitement over DeepSeek’s AI model which required lower investments. However, the momentum is cooling as investors seek tangible applications. Although most companies met or surpassed earnings expectations, the lack of major positive surprises left markets unconvinced.

Hang Seng Tech Index Still Up for the Year

Despite recent losses, the Hang Seng Tech Index remains up more than 23% in 2025. Investors have been optimistic about the sector, driven by the earlier AI-driven uptick and China's President Xi Jinping’s support for business leaders.

Tide Turning for Mag-7 in the U.S.?

While China tech ETFs have been struggling, Tesla TSLA led gains among the 'Magnificent Seven' on March 24, 2025, surging nearly 12% amid investor optimism that President Trump's tariff plans may not be as far-reaching as previously anticipated.

Most of the Magnificent Seven stocks strengthened on March 24, 2025, with the Roundhill Magnificent Seven ETF (MAGS Quick QuoteMAGS - Free Report) rising 3.3% on Monday. The MAGS ETF is up 4.8% over the past week. In a nutshell, the tide appears to be turning in favor of the MAGS ETF, as investors have likely begun to believe that the selloff in U.S. tech stocks has been overdone.