China and Hong Kong stock markets fell on Thursday, as investor enthusiasm surrounding AI startup DeepSeek took a breather following Nvidia’s earnings report. The decline in tech sentiment weighed on major indices in both markets.

The CSI300 Index edged down 0.2%, while the Shanghai Composite Index lost 0.4%. Meanwhile, Hong Kong’s Hang Seng Index dropped 1.1%, driven by a pullback in tech stocks. Chinese AI stocks slid 2.5%, while chipmakers fell 1.8%, mirroring weakness in Nvidia’s value chain.

Despite Nvidia’s earnings meeting market expectations, its stock saw choppy extended trading, leading to profit-taking in China’s AI and semiconductor sectors. A Hong Kong-based hedge fund analyst noted that Chinese hardware stocks often decline when Nvidia delivers in-line earnings.

Tech stocks in China and Hong Kong have been on an upward trajectory this year, fueled by optimism that DeepSeek’s rise signals renewed strength in China’s AI sector. However, analysts caution that some AI stocks may be rising purely on momentum, making them vulnerable to sharp pullbacks.

Looking ahead, China’s upcoming “Two Sessions” meetings could provide more policy clarity. Economists believe that stronger reforms in social welfare, debt restructuring, and business confidence are necessary to sustain long-term economic recovery.