DeepSeek’s impact and investment implications
China’s technology sector stocks have surged since the chatbot’s emergence earlier this year, buoyed by optimism that it will boost economic and earnings growth in the coming years
IN MODERN technology, it is always useful to distill hard-to-understand concepts into everyday, layman views. DeepSeek took the world by storm when it burst into the public domain in January as the main competitor to US rival ChatGPT.
To understand the impact of DeepSeek, China’s low-cost artificial intelligence (AI) chatbot, it helps to see the beneficiaries under three banners: volume, speed and performance.
Surging usage
Let’s take volume first. The number of DeepSeek users in China has jumped much faster in the weeks since its introduction compared with previous AI apps. DeepSeek has seen as much daily usage in the first two months since its roll-out as the next most popular app has seen in 12 months.
The surging use of such chatbots helps companies that are developing so-called large language models – AI programmes that can recognise and generate text, among other tasks – or providing cloud services such as data storage, back-up and other computing and project management tools, to consumers and businesses.
Surging volume also helps telecommunication service providers, because they get more revenue from selling Internet data packages to large-scale data centres that offer their computing resources.
Benefits of speed
The second impact is through speed. One of DeepSeek’s direct commercial applications is helping car companies develop smart driving tools. DeepSeek’s R1 model reinforces these companies’ learning tools, helping autonomous driving models to improve the mean time between failures (a measure of reliability of a system or component).
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Some experts estimate that, with the use of DeepSeek’s R1 model, training efficiency of such tools can be significantly enhanced, slashing training time by as much as 50 per cent.
Improving performance
The final impact is through performance. DeepSeek, through the significant improvement in speed and the sheer increase in possibilities that it can learn, can also enhance autonomous driving’s performance, especially when drivers face unexpected and unknown situations.
Producers of AI-enabled personal computers and smartphones are also likely to benefit as customers need to replace their existing equipment to make use of the newly introduced AI-enabled functions. Meanwhile, computer software providers are likely to benefit from an increase in efficiency and dramatic reduction of error rates.
How much has been priced in?
China’s technology sector stocks have surged since the emergence of DeepSeek earlier this year, buoyed by optimism that the low-cost chatbot will structurally boost economic and earnings growth in the coming years.
The equity market appears to have priced in a significant rise in upcoming earnings, judging from the sharp move higher in the Hang Seng Index, from below 19,000 when DeepSeek emerged in late January to the current 23,500 level. However, the Hang Seng Index is still trading at a 46 per cent discount compared to global equities, or more than one standard deviation from its 10-year average.
Thus, while there could be a technical correction in Chinese equities, potentially towards 21,600 for the Hang Seng Index, we would use any such dip as an opportunity to add exposure to the Hang Seng Technology Index, on which we have been bullish since the end of October 2024.
The writer is head of equity strategy at Standard Chartered Bank’s wealth solutions chief investment office
Copyright SPH Media. All rights reserved.
