China Galaxy Securities: Deepseek is leading the AI medical boom and is expected to continue to raise the valuation of the pharmaceutical sector.

China Galaxy Securities released a research report stating that the release of the Deepseek R1 version in January 2025 has sparked a wave of low-cost, high-quality AI applications. As one of the most important and promising scenarios for AI applications, the core of medical AI lies in the resonance between AI large model inference capabilities and medical big data. Companies in the industry are quickly deploying deepseek localized applications, significantly improving the performance of professional large models, narrowing the gap between industry leaders and followers, which is beneficial for increasing core business market share. Additionally, AI applications are generating new services and functionalities, bringing incremental growth to the industry. In terms of AI medical applications, it is expected that new drug research and development, intelligent device development, diagnostic services, and medical examination services (which are essentially diagnostic services) will all progress rapidly, leading to a continuous increase in the valuation of the pharmaceutical sector. Enhancing data inference capabilities with artificial intelligence, combined with professional databases, adds value. AI technology is transforming the paradigm of the biopharmaceutical industry from "experience-driven" to "data-driven innovation," a trend that can be seen in many areas. In the early stages of new drug development, AI can improve research efficiency and accelerate the entry of drugs into clinical trials. In the field of diagnostic services, artificial intelligence empowers various segments with multidimensional support, assisting in precise diagnosis. In the direction of medical services and medical information technology, artificial intelligence can empower various medical scenarios, promoting the acceleration of innovative applications. Taking a multidimensional perspective on Deepseek applications, the impact on the pharmaceutical industry is far-reaching. 1) Historical perspective: The advent of AI technology may lead to a paradigm shift in the biopharmaceutical industry, from "experience-driven" to "data-driven" innovation. 2) Economic perspective: With the rise in big data processing capabilities, new demands are driving industry expansion. It is estimated that the leap in medical data processing capabilities could generate nearly $40 billion in direct incremental revenue for the global pharmaceutical and biotechnology market annually. In the long term, with the release of more demands such as precision medicine, the industry may unlock a significantly larger service ecology market. 3) Industry perspective: Industry leaders are strengthening their rigid barriers, with the core business market share tending to increase. The closed loop of clinical data remains a moat for enterprises, as intelligent devices require continuous optimization algorithms based on clinical data feedback. Large companies with a large number of installed devices form a closed loop for data acquisition, while small and medium-sized companies struggle to break through the bottleneck of data scale and the cost of intelligent upgrades may further enhance economies of scale. 4) Investment perspective: The liquidity of pharmaceutical assets is improving, and the central valuation is expected to rise. Based on the concept of AI medical sector liquidity and valuation expansion, a positive feedback mechanism of "capital inflow - value discovery - reconfiguration" is formed, supporting the rise in the central valuation of the sector. AI medical investment targets to watch: Diagnostic services: Guangzhou Kingmed Diagnostics Group (603882.SH), Dian Diagnostics Group (300244.SZ); Diagnostic equipment: Shenzhen Mindray Bio-Medical Electronics (300760.SZ), Lepu Medical Technology (300003.SZ), Shanghai United Imaging Healthcare (688271.SH), Jiangsu Yuyue Medical Equipment & Supply (002223.SZ); Health management: Meinian Onehealth Healthcare Holdings (002044.SZ); New drug research and development: PharmaResources (301230.SZ), Hitgen Inc. (688222.SH); Pharmaceutical technology: Yili Chuanning Biotechnology (301301.SZ), etc. Risk warning: Risk of increased macroeconomic pressures leading to insufficient growth in medical consumption ability; risks related to policies such as innovative drug reimbursement payments falling short of expectations; risks of global order shifts due to geopolitical factors; risks of centralized procurement or fee reductions exceeding market expectations.