The rapid rise of Chinese AI start-up DeepSeek is prompting investors to reassess the valuation of China’s technology sector, which has long traded at a steep discount compared to the “Magnificent Seven” US tech giants. As a result, the Hang Seng Tech Index, which includes major companies like Tencent, Alibaba, and Xiaomi, surged to a four-month high, climbing more than 10% over the past two weeks. The broader Hang Seng Index also gained around 6% in the same period.
Alibaba saw significant gains after announcing that its cloud computing unit had integrated DeepSeek’s AI model into its services. Meanwhile, smartphone maker Xiaomi’s market value exceeded HK$1 trillion ($128.4 billion). Investors also flocked to data service provider Merit Interactive in Shenzhen, triggering a 20% daily-limit surge since China’s onshore markets reopened after the Lunar New Year break.
This rally may mark a shift in sentiment for China’s tech sector, which has faced regulatory challenges and weak consumer spending in recent years. Some analysts believe the sector remains undervalued despite innovation and growing AI capabilities. US money manager Invesco noted that, as China’s AI development catches up with the West, its stock valuation gap may also narrow.
Currently, the 30 companies listed on the Hang Seng Tech Index have an average price-to-earnings (P/E) ratio of 20.5 times, while the major US tech firms, including Nvidia, Apple, Amazon, and Microsoft, trade at an average of 41.4 times. Tencent’s P/E ratio stands at 21.4, while Alibaba is at 11.6, significantly lower than Nvidia’s 49 times valuation.
Investors are capitalizing on DeepSeek’s momentum by targeting both established and emerging tech firms that have incorporated its AI technology. Shares of Merit Interactive in Shenzhen surged from 24.10 yuan to 34.70 yuan in just two days after the company announced it was using DeepSeek’s AI to enhance research and development. Beijing Baolande Software saw a similar jump following its own AI integration announcement.
In Hong Kong, ClouDr’s stock climbed to a four-month high of HK$2.05 after embedding DeepSeek’s AI model into its medical platform. Major companies such as Tencent, JD.com, and Huawei have also incorporated DeepSeek’s AI into their operations, further validating the start-up’s rapid ascent.
DeepSeek’s rise is a strong signal that China’s private sector remains globally competitive. Analysts believe its success could push Beijing to prioritize further technological advancements to counter US trade restrictions. With AI innovation driving market confidence, 2025 may see a significant reassessment of Chinese tech stocks.
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