UBS: DeepSeek drives Chinese stock market gains not even halfway there, the future value of AI concept stocks is expected to be reassessed.

Inland artificial intelligence (AI) large model DeepSeek has become popular, leading to continuous popularity of Chinese technology stocks. UBS believes that the road to the rise of the Chinese stock market driven by DeepSeek may not be half complete yet, as good liquidity and low interest rates may provide AI concept stocks with opportunities for future value reassessment. UBS report pointed out that since DeepSeek released the R1 model, Chinese AI-related stocks have risen by 15%, significantly outperforming the MSCI China Index's 9%. UBS admitted that in the AI market and application competition, most companies have limited benefits from AI business, but technology-driven waves often lead earnings realization. In the current environment with sufficient liquidity and falling interest rates, there is still room for valuation increase in Chinese AI concept stocks. With experience in 4G, 5G, and cloud computing, related companies may outperform the market by 50% to 100%, and rebounds often last 1 to 2 years, so UBS believes that this rebound may not be halfway over. For the overall stock market, technology companies account for 20% of the Shanghai and Shenzhen 300 Index, and 12% of the Hang Seng Index's weight. Valuations are also expected to benefit from this, and based on past experience, A-share performance in theme speculation tends to outperform Hong Kong stocks. UBS China stock strategy research director Wang Zonghao pointed out that from a fundamental perspective, with AI users such as cloud providers sacrificing profitability to build ecosystems the earliest contributors to revenue are likely to be IDC companies, hardware manufacturers, and other infrastructure providers. However, based on past experience, software companies may have the greatest potential for valuation increase. UBS's investment theme for this year has three main characteristics: 1) AI applications face uncertainty but may be widely adopted, meaning the potential revenue growth space for beneficiaries may be relatively large; 2) Relatively loose monetary policy benefits stock valuations; 3) Due to uncertainty in macroeconomic recovery, stock selection may decrease. A-share software stocks are expected to be the most effective way to participate, but internet companies may also be long-term beneficiaries of AI model price reductions with low valuations and capital return programs. UBS has collated analysis from different industry analysts and summarized the top 20 AI-themed Chinese stocks: