DeepSeek's inexpensive design increases hope for China AI revolution

DeepSeek stirs nationalistic fever amidst Sino-U.S. rivalry

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, betting the expert system advance of home-grown start-up DeepSeek will lead to a boom in the sector and offer the effort to China in a heightening Sino-U.S. innovation war.

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

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

DeepSeek surprised Silicon Valley and rocked Wall Street late last month with the announcement of a competitive big language model that was ostensibly more affordable 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 given that seen money gushing into AI-related stocks in mainland China and Hong Kong.

The Hang Seng AI Index has leapt more than 5% this week while indices tracking chipmakers and IT companies rose more than 11%, assisting constant the Hong Kong market as the U.S. included a 10% tariff to Chinese imports.

On the mainland, financiers returning from a week-long Lunar New Year holiday on Wednesday also piled into the tech sector, increasing shares of firms in AI, semiconductors, big information and robotics.

"2025 will witness a surge 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, expecting prevalent adoption of both AI software and hardware by consumers and organizations alike.

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

The DeepSeek development highlights how the U.S. attempt to slow China's technological improvement "has actually backfired, instead speeding up Chinese AI innovation," TF Securities said in a client note. It called for a repricing of Chinese technology stocks which have actually underperformed U.S. peers in the last few years amidst increased regulatory examination and geopolitical stress.

The introduction of DeepSeek might trigger even tighter U.S. technology export constraints however that will only invite more federal government support and turbo-charge growth, the brokerage said.

Goldman Sachs anticipates Chinese developments in AI development and application "could materially modify" the stock exchange trajectory.

The Wall Street bank approximates AI-enabled performance enhancement might increase earnings by 2% for Chinese equities, while brighter growth potential customers might lead to a 20% appraisal uplift for Chinese companies, narrowing the gap with U.S. peers.

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

DeepSeek has actually created such a buzz that Chinese companies up and down the AI value chain, from chipmakers to cloud provider are exploring possibilities with the start-up's affordable 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 setiathome.berkeley.edu tech stocks, wagering large, effective business will emerge in what he called an epoch-making transformation.

However, Wang Zhuo, partner of Shanghai Zhuozhu Investment Management, was more mindful.

"Many companies are still far way from generating make money from AI ... As a worth investor, I do not feel great putting cash into these stocks." (Reporting by Samuel Shen and Jiaxing Li; Editing by Vidya Ranganathan and Christopher Cushing)