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DeepSeek's inexpensive model increases expect China AI transformation

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 investors are hurrying into AI-related stocks, wagering the expert system advance of home-grown startup DeepSeek will result in a boom in the sector and provide the initiative to China in a magnifying Sino-U.S. technology war.

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

"DeepSeek's breakthrough reveals Chinese engineers are imaginative and capable of innovations 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 large language model that was ostensibly more affordable to establish than those of big-spending U.S. leaders such as OpenAI and Meta.

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

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

On the mainland, financiers returning from a week-long Lunar New Year vacation on Wednesday also stacked into the tech sector, improving shares of firms in AI, semiconductors, huge information and robotics.

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

"We're really positive about chances developed by this transformation," Zhou said, expecting prevalent adoption of both AI hardware and software by customers and services alike.

Likely beneficiaries include 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. attempt to slow China's technological development "has actually backfired, rather accelerating Chinese AI innovation," TF Securities said in a customer note. It called for a repricing of Chinese innovation stocks which have actually underperformed U.S. peers recently in the middle of increased regulatory examination and geopolitical stress.

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

Goldman Sachs anticipates Chinese breakthroughs in AI advancement and application "could materially alter" the stock exchange trajectory.

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

China's "tough tech" stocks trade at a price representing 23.6 times profits, 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 produced such a buzz that Chinese companies up and down the AI value chain, from chipmakers to cloud service providers are checking out possibilities with the startup's affordable services, including 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 pipewiki.org tech stocks, wagering large, successful business 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 creating revenue from AI ... As a worth investor, I do not feel great putting money into these stocks." (Reporting by Samuel Shen and Jiaxing Li; Editing by Vidya Ranganathan and Christopher Cushing)

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