By Sherry Qin

A Nasdaq-like index for Chinese companies listed in Hong Kong has entered technical bull territory following robust gains by China's largest technology stocks that have added billions of dollars in market value, driven by the sudden rise to fame of homegrown AI app DeepSeek.

The Hang Seng Tech Index, which tracks the 30 largest technology companies listed in the city, rose as much as 2.9% on Friday, reflecting a rise of more than 20% from its January low. The index is closing in on its 2024 high reached in October but is still far from the all-time high recorded in early 2021.

PC maker Lenovo and smartphone specialist Xiaomi were among the top gainers, advancing as much as 9.2% and 6.2%, respectively. Software companies also jumped on hopes that incorporating DeepSeek's AI model into their offerings would fuel business growth. Enterprise software maker Kingdee jumped 14.5%.

Chinese AI company DeepSeek emerged seemingly out of nowhere last month. DeepSeek has touted its latest AI model, R1, as being particularly good at problem solving, performing on par with OpenAI's o1 reasoning model but at a fraction of the cost per use.

The optimism over China's AI development has largely helped its tech companies shrug off the impact of U.S. President Trump's additional 10% tariff on Chinese imports.

"The global attention on DeepSeek can spur investors to reassess China's innovation capacity, and which in our view could be a rerating catalyst for the Chinese equity market this year," HSBC analysts said in a report.

Several analysts have noted that in the field of AI, there has been a gradual shift toward software and application platforms from infrastructure and semiconductors. They think DeepSeek's low-cost yet powerful model and its open-source nature could accelerate AI adoption across various sectors in China, particularly benefiting businesses involved in cloud application software and AI technologies.

In another note, HSBC called the DeepSeek breakthrough the "dawn of universal AI adoption." The integration of DeepSeek's model could improve software companies' research and design efficiency, saving costs and driving earnings growth in the medium term, it said.

Citi said it sees the Chinese AI startup's cost-efficient model benefiting hardware companies too. DeepSeek could accelerate the generative AI implementation on edge devices, such as smartphones and smart glasses, it wrote in a note.

DeepSeek's ascent has also raised security concerns in several countries. Australia and South Korea this week banned DeepSeek on government devices, citing security risks, while U.S. lawmakers plan to introduce a bill on Friday to ban the chatbot app as well.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

February 07, 2025 02:46 ET (07:46 GMT)

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