China’s technology sector is experiencing a surge in activity, with companies racing to release innovative artificial intelligence products. This wave of development comes in the wake of increased government backing for AI initiatives.
New AI Applications Emerge
A lesser-known Chinese startup, Monica, recently launched an invite-only AI application called Manus. The application claims to streamline the analysis of resumes and financial data, using several models from leading companies. These include OpenAI, DeepSeek, and Anthropic.
Nomura China technology analyst Bing Duan and his team commented on the launch of Manus. They stated, “The innovation is probably not as significant as DeepSeek, in our view. However, we believe this product is yet another example of China’s accelerated AI innovation.”
The analysts also highlighted the broader trends in AI infrastructure investment within China. They said, “We believe that the AI infrastructure investment upcycle has started in China’s AI value chain, which should benefit from leading suppliers exposed to China’s major Internet/Telecom companies’ capex on cloud and AI infrastructure.”
Investment Opportunities in the AI Sector
Nomura identified several companies they believe are well-positioned to benefit from this investment upcycle. These include three mainland China-listed printed circuit board companies: Shennan Circuits, Shengyi Technology, and WUS PCB. These companies have established partnerships with prominent Chinese AI tech leaders.
Additionally, Nomura favors Shenzhen-listed Accelink for its role as a leading supplier of optical transceivers. These transceivers are crucial for high-speed data transmissions in AI development. All four stocks are rated as “buy” by Nomura.
Tech’s Leadership in Chinese Stocks
Amidst challenges like rising tariffs and a slowing economy, Chinese policymakers have increased the national deficit and announced plans to boost subsidies for consumer trade-ins. Furthermore, they are providing financing for tech companies. Senior officials have also publicly praised the rise of DeepSeek AI.
Nicholas Yeo, head of China equities at abrdn, said in a note that the government’s messaging on technology is “encouraging, a strong signal to support both innovation and the private sector.” He added, “With valuations of the internet sector cheap relative to U.S. counterparts, alongside the support of the authorities to boost the nation’s AI capabilities, we think this remain a very attractive opportunity for investors.”
The Hang Seng Index in Hong Kong saw a notable gain of 5.6% last week, reaching a three-year high, while the CSI 300 fell by roughly 1.4% during the same period. Aaron Costello, head of Asia at Cambridge Associates, noted that the recent gains in Chinese stocks have been largely driven by technology stocks, which is evident in the Hang Seng Index’s outperformance. He mentioned that several major Chinese tech companies are listed in Hong Kong.
Costello suggested that if the government’s stimulus efforts yield positive economic results, gains could broaden, leading to a further increase in A shares.
Tencent and Alibaba Lead AI Development
The Hang Seng Index’s rise was partially fueled by a surge in Alibaba’s Hong Kong-traded shares, which reached a new 52-week high. The e-commerce giant unveiled a new AI reasoning model, claiming it performs on par with DeepSeek’s R1 model.
Tencent, also listed in Hong Kong, recently launched the newest version of its Hunyuan AI model, Turbo S. Claims suggest Turbo S surpasses DeepSeek V3, OpenAI’s GPT-4o, Claude 3.5 Sonnet, and Llama 3.1 in certain metrics. Tencent also released a new T1 reasoning model based on Turbo S, which is accessible through the Yuanbao app.
Bernstein China Internet analyst Robin Zhu and his team highlighted Tencent’s advancements in implementing AI in a report, naming Tencent as their top China AI play. They stated, “We’d argue the last few weeks have presented ample evidence in favor of Tencent’s ability to productionize AI.” They further noted, “Tencent’s recent moves on implementing DeepSeek within its family of apps make it clear that this was one of the times Tencent’s top management decided the troops must be rallied for a common goal.”
The analysts indicated that Tencent has rapidly incorporated DeepSeek across its digital ecosystems, including WeChat, the AI assistant Yuanbao, and Peacekeeper Elite within its video gaming division. Bernstein analysts have raised their price target on Tencent to 640 Hong Kong dollars, representing a 20% increase. The firm rates the stock as overweight.
In addition, the analysts highlighted, “Tencent’s AI assistant Yuanbao is now being downloaded at a faster rate than both Bytedance’s Doubao and the DeepSeek app. Social advertising is a tried and tested monetisation pathway for AI advancements, and Yuanbao growth potentially sets up a larger search ads business over time.”
Tencent is scheduled to release its quarterly results on March 19.
