Chinese AI advances with DeepSeek-R1, challenging global giants and redefining the economic and technological landscape between innovation, reduced costs and market dynamics.
The development of DeepSeek-R1, a new AI model developed in China, has shaken up global markets, marking a potential turning point in technological competition.
The question that arises spontaneously is: “will part of the capital that has arrived on the markets towards AI funds and stocks be transferred to China?” In short, is it time to reconsider one’s holdings in the East?
The answer is not obvious, because it depends not only on economic factors, but also on geopolitical ones. In fact, a possible trade war with the USA is worrying.
DeepSeek-R1: a new player in global AI
DeepSeek-R1, developed by the Chinese startup DeepSeek, represents a significant leap forward in the artificial intelligence sector. Founded in 2023 by Liang Wenfeng, a former student of Zhejiang University, DeepSeek has introduced technical innovations that seem to give even OpenAI and Google a run for their money.
The technology behind DeepSeek-R1, which is disrupting its competitors, is Multi-head Latent Attention, which reduces memory consumption by 40%, a remarkable achievement given the current challenges of AI scalability. Thanks to the Mixture-of-Experts architecture, the model uses only a fraction of its 671 billion parameters for each input, significantly lowering computational costs.
In AI models as they are currently conceived, training costs are a significant barrier for many companies; with the arrival of DeepSeek-R1, that could change. To put the economic advantage into perspective, the estimated cost of training DeepSeek-R1 is around $15 million, a tenth of the $150 million spent by Meta on its models.
These technical results seem to suggest that China is not as far behind in the AI sector as many believed. That said, what to expect in the stock market?
The economic context and market implications
While Chinese technology companies have always been at the forefront of areas such as e-commerce and digital payments, artificial intelligence represents a new frontier. It is no coincidence that when thinking about AI companies in the East, few stocks come to mind, and those that exist have not performed very well in recent years.
However, what seemed to be a disadvantage could now turn into a strength with the introduction of DeepSeek. Chinese tech companies are relatively cheaply valued compared to their US counterparts. For example, while US big techs trade at earnings multiples around 40, Chinese companies have an average P/E of 10 to 15. This means investors could get a higher potential return at a lower cost.
Nvidia and the AI thermometer
While there is much talk about China, there is a real flight from AI stocks on the stock market. In particular, Nvidia, which dominates the market for GPUs needed to train advanced AI models, recently fell nearly 10% in pre-market trading on Wall Street. This is a sign that reflects both the competition from China and the global uncertainties related to the technology sector. With the markets open, there does not seem to be any sign of recovery.
HangSeng Index: Technical Analysis
The Hang Seng Index is currently in a very delicate but, at the same time, interesting area. The price of the index has reacted very well to last month’s rebound on the 200- and 50-period moving average, signaling good support from demand. The index’s P/E ratio is just over 11x, making it particularly convenient compared to the American S&P500, which has a P/E above 30x.
If interest in Chinese big tech were to actually revive, the Hang Seng Index, which includes the country’s large capitalizations, could confirm a bullish scenario. An initial reference target could be the 22,000 point level, an area already reached twice in the last two years. However, it will be essential to observe how this evolution will influence China’s GDP, which is positive but characterized by a slowing growth rate.
A confirmation signal could come with the publication of the EPS of Chinese companies, considered the real engine of the global stock market, especially in the technology sector.
Investing in China, yes or no?
In essence, the situation should not be taken lightly. The Chinese economic context is evolving, with the government continuously introducing new stimuli and promoting technological innovation as a pillar of its growth strategy. China is becoming increasingly interesting in the eyes of investors. However, uncertainties related to geopolitical issues persist. It is no coincidence that recently the USA, with the arrival of Trump at the White House, also introduced the Stargate program, worth over $500 billion.
The close disclosure of these two novelties, Stargate and DeepSeek-R1, does not seem to be a coincidence, but rather a preview of what could be a trade clash between the two superpowers in the field of innovation. If the launch of DeepSeek-R1 shifts the market’s attention to China, it is not certain that it will be able to recover what it has lost, especially if the conflict with the US were to result in a trade war. According to estimates by the IMF, such a scenario could lead to a 7% drop in global GDP.
Original article published on Money.it Italy 2025-01-27 17:16:26. Original title: Con l’arrivo di DeepSeek-R1 conviene investire in Cina?
