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DeepSeek's inexpensive model enhances wish for China AI transformation

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

AI-related stocks in China and Hong Kong rise

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 lead to a boom in the sector and offer the effort to China in a heightening Sino-U.S. innovation war.

Feverish purchasing has pumped up shares of Chinese chipmakers, software designers and data centre operators in the middle of patriotic calls for an upward repricing of Chinese properties as U.S. President Donald Trump charges a trade war with fresh tariffs.

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

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

The event was explained as a watershed minute by Huaxi Securities experts 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 jumped more than 5% this week while indices tracking chipmakers and IT firms rose more than 11%, helping constant the Hong Kong market as the U.S. included a 10% tariff to Chinese imports.

On the mainland, investors returning from a week-long Lunar New Year holiday 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 financial investment at Futures Vessel Capital.

"We're very positive about chances produced by this revolution," Zhou said, anticipating 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 shows how the U.S. attempt to slow China's technological development "has actually backfired, instead speeding up Chinese AI innovation," TF Securities said in a client note. It required a repricing of Chinese technology stocks which have underperformed U.S. peers in the last few years amid 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 government support and turbo-charge growth, iwatex.com the brokerage said.

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

The bank approximates AI-enabled performance enhancement might increase profits by 2% for Chinese equities, while brighter development prospects might lead to a 20% appraisal uplift for Chinese firms, narrowing the space with U.S. peers.

China's "hard 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 most significant U.S. tech stocks, the so-called "Mag 7", is 31, revealed the Goldman report dated Feb 4.

DeepSeek has developed such a buzz that Chinese companies up and down the AI worth chain, from chipmakers to cloud provider 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 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 way from producing benefit from AI ... As a value investor, I do not feel confident putting cash into these stocks." (Reporting by Samuel Shen and Jiaxing Li; Editing by Vidya Ranganathan and Christopher Cushing)