DeepSeek fever fuels patriotic betting on Chinese AI stocks
Chinese investors are investing in AI-related stocks. They believe that the homegrown startup DeepSeek's artificial intelligence advancement will result in a boom for the sector, and give China the advantage in an intensifying Sino/U.S. tech war.
As President Donald Trump re-energizes the trade war by imposing new tariffs, patriotic calls have fueled a frenzy of buying in Chinese chipmakers and software developers as well as data centre operators.
Abraham Zhang, Chairman of China Europe Capital, said that DeepSeek's success shows Chinese engineers can be creative and produce inventions to compete with Silicon Valley. It has also sparked a nationalistic fever on the capital markets.
DeepSeek stunned Silicon Valley and rocked Wall Street last month when it announced a large language model with a lower cost of development than the U.S. giants OpenAI and Meta.
Analysts at Huaxi Securities described the event as a "watershed moment" and since then, money has poured into AI-related stocks on mainland China and Hong Kong.
The Hang Seng AI Index jumped over 5% this past week, while the indices that track chipmakers and IT companies surged by more than 11%. This helped stabilize the Hong Kong Market as the U.S. imposed a 10% tariff on Chinese imports.
Investors returning to the mainland from a Lunar New Year vacation of a week on Wednesday also piled in the tech sector. Shares of companies in AI, semiconductors, big data, and robotics rose.
Zhou Yingbo is the head of investment for Futures Vessel Capital. He said that AI applications will explode in 2025.
Zhou expressed his optimism about the opportunities that this revolution will bring, and he predicted widespread adoption of AI hardware and software both by businesses and consumers.
Huaxi Securities stated that Nancal Technology and Suzhou MedicalSystem Technology are likely beneficiaries, as well as Doctorglasses Chain, Bestechnic Shanghai, and Ucap Cloud Information Technology.
In a note to clients, TF Securities stated that the DeepSeek project illustrates how U.S. efforts to slow China's technology advancement have "backfired", instead accelerating Chinese artificial intelligence innovation. The note called for a repricing on Chinese technology stocks that have been underperforming their U.S. counterparts in recent years due to increased regulatory scrutiny and political tension.
Brokerage said that the emergence of DeepSeek may lead to tighter restrictions on U.S. technology. However, this will only encourage more government support for growth and a boost in growth.
Goldman Sachs believes that Chinese breakthroughs in AI application and development "could materially change" the stock market's trajectory.
Wall Street Bank estimates AI-enabled improvements in efficiency could increase earnings for Chinese stocks by 2%, while better growth prospects could result in a 20% valuation boost for Chinese companies, narrowing their gap with U.S. counterparts.
China's "hard" tech stocks are valued at 23.6 times earnings while "soft" tech shares are priced at 13.9. Goldman's report from February 4 shows that the price-to earnings ratio for the seven largest U.S. technology stocks (the "Mag 7") is 31.
DeepSeek's low cost services have created so much buzz in China that companies from the chipmakers up to the cloud service providers, such as Huawei Technologies and Baidu, are exploring the possibilities.
Yi Xiangjun of Shenzhen Black Stone Asset Management said he was "all in" China’s AI and technology stocks, betting that large, successful firms will emerge from what he described as an epochal revolution.
Wang Zhuo was more cautious, however, as a partner at Shanghai Zhuozhu Investment Management.
"As a value-investor, I'm not confident about investing in these stocks." (Reporting and editing by Vidya Rangenathan and Christopher Cushing; Reporting by Samuel Shen, Jiaxing LI)
(source: Reuters)
