Chinese Tech Stocks Near Technical Bull Market on DeepSeek Hype

The Hang Seng Tech Index, which includes major players like Tencent Holdings TCEHY, Alibaba Group Holding BABA, and Xiaomi, neared a four-month high after rallying over 10% in the past two weeks. At the same time, the broader Hang Seng Index climbed about 6%. According to Bloomberg data, the 30 companies in the Hang Seng Tech Index had an average price-to-earnings ratio of 20.5 times, compared to the 'Magnificent Seven' U.S. tech giants' average of 41.4 times. Alibaba's stock price doubled during the same period after its cloud computing division integrated DeepSeek's AI model into its offerings, while Xiaomi's market value surpassed HK$1 trillion ($128.4 billion). Investors also made significant investments in Shenzhen-based data service provider Merit Interactive, leading to a 20% daily-limit increase since China's onshore markets reopened after the Lunar New Year holiday, reported the South China Morning Post on Thursday.

The recent surge in Chinese tech stocks, led by DeepSeek, has sparked a rebound in the sector, with the Hang Seng Tech Index gaining 33% since the end of January. Even after this run, the gauge tracking China's major tech firms is trading at less than 17 times forward-earnings estimates, compared with its five-year average of 26 times. The Nasdaq 100 is currently at 26 times. Analysts have raised their forward-earnings estimates for the Hang Seng Tech Index to a three-year high, suggesting that shares of Chinese tech firms may have bottomed out. Some investors have already returned to the battered sector, driving the Hang Seng Tech Index up by 33% since the end of January.

The surge in Chinese tech stocks comes in the wake of concerns raised by billionaire Ray Dalio about valuation dynamics in the tech sector, particularly in the context of artificial intelligence and global economic shifts. Dalio's comments were made as companies like DeepSeek began to make significant waves in the tech sector. Moreover, Warren Buffett has been reportedly reducing his holdings in growth-focused tech stocks in search of better valuations in other sectors. Furthermore, a recent Benzinga reader poll questioned the valuations of artificial intelligence companies with the surge of interest in DeepSeek, hinting at potential impacts on the 'Magnificent Seven' stocks. Even President Donald Trump describes the rise of DeepSeek as a "wake-up call" in light of concerns over the long-term viability of the Western artificial intelligence boom.

The surge in Chinese tech stocks, led by DeepSeek, has narrowed the valuation gap with their U.S. counterparts. However, investors should remain cautious, as challenges persist, such as cautious Chinese consumers and competition from new entrants. Additionally, geopolitical tensions and regulatory pressures may continue to impact the sector. As the market dynamics evolve, investors should monitor the performance of Chinese tech stocks closely to capitalize on emerging opportunities and mitigate potential risks.

In conclusion, the recent surge in Chinese tech stocks, led by DeepSeek, has narrowed the valuation gap with their U.S. counterparts, driven by attractive valuations and innovation. However, investors should remain cautious, as challenges persist, and geopolitical tensions and regulatory pressures may continue to impact the sector. As the market dynamics evolve, investors should monitor the performance of Chinese tech stocks closely to capitalize on emerging opportunities and mitigate potential risks.