China’s AI sector is experiencing a surge in investment, driven by the rapid advancements of home-grown startup DeepSeek. Investors are pouring money into AI-related stocks, anticipating that DeepSeek’s breakthrough will not only reshape the sector but also position China at the forefront of the intensifying technological rivalry with the United States.
The rush to invest has propelled shares of Chinese chipmakers, software firms, and data centre operators higher, with nationalist sentiment amplifying the demand for domestic assets. This comes as U.S. President Donald Trump escalates trade tensions with fresh tariffs, further fuelling the urgency to support home-grown tech innovation.
Abraham Zhang, Chairman of China Europe Capital, highlighted the significance of DeepSeek’s milestone, calling it a testament to the ingenuity of Chinese engineers and their ability to rival Silicon Valley. This sentiment has triggered a wave of enthusiasm across capital markets, with analysts viewing it as a pivotal moment for China’s AI industry.
DeepSeek’s recent unveiling of a large language model, reportedly developed at a fraction of the cost of its U.S. competitors like OpenAI and Meta, sent shockwaves through Wall Street and Silicon Valley. Analysts at Huaxi Securities described the event as a game-changer, leading to an influx of capital into AI-related stocks in both mainland China and Hong Kong. The Hang Seng AI Index has jumped over 5% this week, while semiconductor and IT indices have seen gains exceeding 11%, providing stability to Hong Kong markets despite the newly imposed 10% tariff on Chinese imports.
Following the Lunar New Year holiday, mainland investors also rushed into the tech sector, boosting shares across AI, semiconductor, big data, and robotics industries. Investment leaders, such as Zhou Yingbo from Futures Vessel Capital, predict 2025 will mark an inflection point for AI applications, with widespread adoption driving both hardware and software sales.
Potential winners in this AI revolution include Nancal Technology, Suzhou MedicalSystem Technology, Doctorglasses Chain, Bestechnic Shanghai, and Ucap Cloud Information Technology, according to Huaxi Securities. TF Securities noted that U.S. efforts to hinder China’s technological progress have, ironically, spurred greater innovation, reinforcing the case for a market revaluation of Chinese tech stocks. Years of regulatory challenges and geopolitical uncertainties had dampened their performance relative to U.S. peers, but DeepSeek’s rise is changing investor sentiment.
Goldman Sachs sees China’s AI advancements as a potential game-changer for the stock market, with efficiency gains projected to lift earnings by 2%. The bank also estimates that improved growth prospects could lead to a 20% valuation increase for Chinese firms, narrowing the gap with U.S. tech giants. While China’s “hard tech” stocks currently trade at 23.6 times earnings and “soft tech” stocks at 13.9 times, the valuation of leading U.S. tech firms—the “Mag 7″—stands at 31 times earnings, suggesting room for upward momentum.
DeepSeek’s influence is rippling through the entire AI ecosystem, with major players such as Huawei, Alibaba, and Baidu exploring opportunities to integrate its cost-effective solutions. Yi Xiangjun, a partner at Shenzhen Black Stone Asset Management, is fully committed to China’s AI and tech stocks, convinced that the sector is on the cusp of an industry-defining transformation. However, some investors, like Wang Zhuo of Shanghai Zhuozhu Investment Management, remain cautious, pointing out that many AI companies have yet to prove their profitability.
As DeepSeek continues to make waves, the race for AI dominance between China and the U.S. is only accelerating. With strong government backing, growing investor confidence, and breakthrough innovations, China’s AI sector is poised for exponential growth in the coming years.
DeepSeek is leading China’s charge in artificial intelligence, offering a low-cost, high-performance alternative to U.S. competitors. Its success is driving investment across the entire AI value chain, from semiconductor manufacturing to cloud computing, solidifying China’s position in the global AI race.
Fidelity China Special Situations PLC (LON:FCSS), the UK’s largest China Investment Trust, capitalises on Fidelity’s extensive, locally-based analyst team to find attractive opportunities in a market too big to ignore.
