DeepSeek's low-cost model enhances wish for China AI revolution

DeepSeek stirs nationalistic fever amid Sino-U.S. competition

AI-related stocks in China and Hong Kong surge

By Samuel Shen and Jiaxing Li

SHANGHAI/HONGKONG, Feb 6 (Reuters) - Chinese financiers are hurrying into AI-related stocks, wagering the artificial intelligence advance of home-grown startup DeepSeek will cause a boom in the sector and provide the initiative to China in a magnifying Sino-U.S. innovation war.

Feverish purchasing has actually pumped up shares of Chinese chipmakers, software application designers and data centre operators amid patriotic require an upward repricing of Chinese assets as U.S. President Donald Trump recharges a trade war with fresh tariffs.

"DeepSeek's development shows Chinese engineers are creative and capable of creations that can complete with Silicon Valley," said China Europe Capital Chairman Abraham Zhang. "It has actually likewise stirred nationalistic fever in capital markets."

DeepSeek stunned Silicon Valley and rocked Wall Street late last month with the announcement of a competitive large language design that was ostensibly cheaper to develop than those of big-spending U.S. leaders such as OpenAI and Meta.

The occasion was explained as a watershed minute by Huaxi Securities experts and has actually because seen cash gushing into AI-related stocks in mainland China and Hong Kong.

The Hang Seng AI Index has jumped more than 5% this week while indices tracking chipmakers and IT companies surged more than 11%, helping steady the Hong Kong market as the U.S. added a 10% tariff to Chinese imports.

On the mainland, investors returning from a week-long Lunar New Year vacation on Wednesday likewise piled into the tech sector, enhancing shares of firms in AI, semiconductors, big data and robotics.

"2025 will witness an explosion of AI applications," said Zhou Yingbo, head of investment at Futures Vessel Capital.

"We're really optimistic about chances developed by this revolution," Zhou said, anticipating extensive adoption of both AI hardware and software by customers and businesses alike.

Likely beneficiaries consist of Nancal Technology, Suzhou MedicalSystem Technology, Doctorglasses Chain, Bestechnic Shanghai and Ucap Cloud Details Technology, Huaxi Securities said.

The DeepSeek advancement shows how the U.S. effort to slow China's technological development "has actually backfired, rather speeding up Chinese AI development," TF Securities said in a customer note. It called for a repricing of Chinese technology stocks which have underperformed U.S. peers recently amid increased regulatory examination and geopolitical stress.

The emergence of DeepSeek might prompt even tighter U.S. innovation export constraints but that will only welcome more federal government support and turbo-charge development, the brokerage said.

Goldman Sachs expects Chinese developments in AI development and application "might materially change" the stock market trajectory.

The Wall Street bank estimates AI-enabled efficiency improvement might increase earnings by 2% for Chinese equities, while brighter growth potential customers might result in a 20% appraisal uplift for firms, narrowing the space with U.S. peers.

China's "hard tech" stocks trade at a cost representing 23.6 times profits, while "soft tech" shares trade at 13.9. The price-to-earnings ratio of the most significant U.S. tech stocks, the so-called "Mag 7", is 31, showed the Goldman report dated Feb 4.

DeepSeek has developed such a buzz that Chinese companies up and down the AI value chain, from chipmakers to cloud provider are checking out possibilities with the startup's low-cost services, consisting of heavyweights such as Huawei Technologies, Alibaba and Baidu.

Yi Xiangjun, partner of Shenzhen Black Stone Asset Management, said he is "all in" China's AI and tech stocks, betting big, effective companies will emerge in what he called an epoch-making revolution.

However, Wang Zhuo, partner of Shanghai Zhuozhu Investment Management, links.gtanet.com.br was more cautious.

"Many business are still far method from producing benefit from AI ... As a value investor, I do not feel great putting money into these stocks." (Reporting by Samuel Shen and Jiaxing Li