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DeepSeek's low-cost model improves hope for China AI revolution

DeepSeek stirs nationalistic fever amidst 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 investors are hurrying into AI-related stocks, betting the synthetic intelligence advance of home-grown startup DeepSeek will cause a boom in the sector and provide the initiative to China in an intensifying Sino-U.S. innovation war.

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

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

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

The event was explained as a watershed moment by Huaxi Securities experts and has actually considering that seen cash 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 surged more than 11%, assisting steady 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 vacation on Wednesday also piled into the tech sector, improving shares of companies in AI, semiconductors, big information and robotics.

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

"We're very positive about opportunities developed by this revolution," Zhou said, expecting widespread adoption of both AI software and hardware by customers and services alike.

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

The DeepSeek advancement illustrates how the U.S. attempt to slow China's technological development "has backfired, instead accelerating Chinese AI development," TF Securities said in a customer note. It required a repricing of Chinese technology stocks which have actually underperformed U.S. peers in the last few years in the middle of increased regulatory scrutiny and geopolitical stress.

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

Goldman Sachs expects Chinese breakthroughs in AI advancement and application "could materially change" the stock market trajectory.

The Wall Street bank estimates AI-enabled performance enhancement might increase revenues by 2% for Chinese equities, while brighter growth prospects might lead to a 20% appraisal uplift for Chinese companies, narrowing the space with U.S. peers.

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

DeepSeek has actually developed such a buzz that Chinese business up and down the AI worth chain, from chipmakers to cloud provider are checking out possibilities with the 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, was more mindful.

"Many business are still far method from generating revenue from AI ... As a value investor, I do not feel confident putting money into these stocks." (Reporting by Samuel Shen and Jiaxing Li; Editing by Vidya Ranganathan and Christopher Cushing)