Chinese technology stocks are witnessing a surge, spearheaded by DeepSeek, thereby closing the valuation gap with the U.S. ‘Magnificent Seven.’
What Happened: 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. In comparison, the Mag. 7 giants—Apple AAPL, Microsoft MSFT, Amazon AMZN, Alphabet GOOG GOOGL, Meta Platforms META, Nvidia NVDA, and Tesla TSLA—traded at an 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. At the same time, 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.
This rebound may indicate a change in the sentiment of the tech sector, which has been impacted by weak spending and increased scrutiny of fintech practices over the past four years. Some investors think the current rise in Chinese tech stocks could persist, driven by their attractive valuations and innovation, even with ongoing U.S. restrictions.
"Chinese equities, and especially technology companies, are priced at a steep discount compared to their American counterparts," a strategist at US money manager Invesco, David Chao, told the publication.
"Similar to the AI development gap narrowing, so too is the [stock] valuation gap."
Why It Matters: 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.
On the day of the launch of the Chinese AI chatbot DeepSeek, NASDAQ dropped 3%, while Nvidia stock plummeted 17% on a single day, marking the biggest fall in U.S. stock market history.
Image via Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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