The landscape of artificial intelligence investment is undergoing a fundamental transformation, marking a pivotal shift from hardware-centric strategies to software-driven applicationsThe latest surge in the DeepSeek ecosystem, which has propelled a wave of enthusiasm across China’s technology sector, exemplifies this evolving trendOnce-dominant segments such as co-packaged optics (CPO), printed circuit boards (PCB), liquid-cooled servers, and high-speed copper cable connections are now cooling off as investors recalibrate their strategies.
This transition reflects a broader recognition among market participants: while hardware remains essential, the true value of AI lies in its applicationsThe rise of DeepSeek, a powerful large-scale AI model, is accelerating the deployment of AI-driven solutions across industries, signaling the arrival of a new phase in AI investment.
Capital Flows Favor Software
On February 12, the DeepSeek-related sector experienced a remarkable surge, with leading technology stocks such as QingCloud Technologies, Juran Smart Home, Zhejiang Daily Digital Culture, Visual China, Mega Information, Talkweb Information System, Zhejiang Orient, and DataPort reaching their daily trading limitsThis rally underscores the growing investor preference for software-oriented AI solutions over traditional hardware infrastructure.
Recent data from Wind Information indicates that DeepSeek-related software ecosystem stocks have outperformed the broader market in the past weekSectors such as AI-driven media, cloud computing, industrial internet, and Huawei’s HMS ecosystem have shown significant momentum, reflecting a broader shift in investment preferences.
From a capital flow perspective, the software sector has emerged as the top beneficiary, with substantial net inflowsElectronic components follow closely behind, while internet, cultural media, and semiconductor industries have also seen noticeable capital accumulation
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Analysts attribute this trend to the maturation of AI infrastructure and the increasing emphasis on application-layer innovations.
Institutional Perspectives on AI’s Next Wave
Leading asset managers have acknowledged this shiftWestlead Fund, in its analysis of China’s mutual fund reports for Q4 2024, noted that institutional portfolios are now heavily weighted toward deep-tech investmentsWhile hardware remains an essential component of AI infrastructure, historical patterns suggest that once investment concentration surpasses a certain threshold, its profitability diminishesAs witnessed during the mobile internet revolution, the next major AI wave is likely to emerge in the application layer, where DeepSeek is playing a critical role in accelerating deployment.
Hua Tong, investment director and fund manager at Zhengyuan Investment, believes that AI’s growth narrative has moved beyond Nvidia’s supply chain toward China’s domestic computing power ecosystemThe demand for AI cloud services and application development has surged, largely due to DeepSeek’s ability to enable cost-effective AI model deploymentUnlike earlier AI frameworks that required extensive hardware investment, DeepSeek’s efficiency allows small and medium-sized enterprises (SMEs) to implement AI-driven solutions at a fraction of the previous costThis democratization of AI technology has sparked widespread optimism about enterprise-level IT spending, with expectations that AI applications will proliferate across industries.
Meanwhile, Liu Bosheng, research director and fund manager at Mingshi Partners Fund, highlighted that DeepSeek’s emergence has ushered in a new phase of AI investmentPreviously, AI-related investments were divided between hardware-driven revenue models and AI application investments tied to U.S. stock market trendsHowever, DeepSeek’s outstanding performance and open-source attributes are prompting investors to shift their focus from hardware toward software applications
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This transition also signals a move away from purely mirroring U.SAI application stocks toward a more nuanced approach based on business tracking and revenue projections.
AI Cloud Ecosystem Poised for Growth
From a macro perspective, AI models are inherently cloud-centricChina’s tech giants have responded by ramping up capital expenditures, triggering a "catfish effect" that stimulates competition and innovation within the domestic AI ecosystemAt the same time, DeepSeek’s ability to facilitate AI model training for SMEs is fostering a new wave of investments in cloud-based AI solutionsThis momentum is expected to drive sustained interest in China’s cloud computing industry, further reinforcing the strategic importance of AI software.
Despite these optimistic projections, investors remain mindful of the cyclical nature of AI investmentHardware infrastructure, which previously dominated AI-related stock gains, has seen a relative decline in enthusiasmThe cooling of sectors such as CPO, PCB, liquid-cooled servers, and high-speed copper cable connections reflects market concerns over sustained hardware spending.
DeepSeek’s efficiency has also raised questions about whether enterprises will continue large-scale investments in AI hardwareHowever, analysts point out that leading global tech firms, including Google, have exceeded expectations with their AI investments, helping to stabilize market confidence in computing power infrastructure.
The New Investment Logic: AI Applications Take Center Stage
A recent report by Goldman Sachs reinforces this paradigm shift, emphasizing that AI’s value creation is transitioning from hardware to software applicationsThe investment bank noted that AI software’s strong representation within the MSCI China Index could position it for short-term outperformanceAs a result, Goldman Sachs recommends an overweight allocation in Chinese technology stocks, particularly those demonstrating innovation and competitive advantages in AI applications.
Liu Bosheng attributes the cooling of AI hardware investments to two key factors
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First, DeepSeek’s ability to deliver high-quality AI outcomes with minimal hardware investment has tempered expectations of prolonged high-demand growth for AI hardwareSecond, institutional investors, having already allocated substantial resources to AI infrastructure, are now rotating their holdings toward emerging high-growth segments.
Looking ahead, Liu believes that while AI applications offer greater long-term revenue potential, both hardware and software will experience cyclical rotations based on technological advancements and valuation adjustmentsHardware industries, particularly optical modules, may still present near-term investment opportunities given their earnings visibility.
DeepSeek’s Role in Accelerating AI Commercialization
As DeepSeek continues to gain traction, its impact extends beyond technology stocksAnalysts anticipate that AI applications will first gain widespread adoption in industries such as healthcare, e-commerce, wearable technology, and financeThese sectors are already exploring how AI-driven models can optimize efficiency and enhance user experiences.
Mark Wei, founder and chairman of Mingze Investment, sees healthcare and education as two of the most promising fields for AI applicationAI has the potential to make education more accessible, efficient, and personalized, thereby reshaping the learning experience for students worldwideSimilarly, in healthcare, AI-driven diagnostic tools and decision-support systems can enhance medical efficiency and reduce costsDeepSeek’s capabilities in these areas are expected to accelerate the adoption of AI-powered solutions across multiple industries.
Wei also advises investors to closely monitor AI industry developments, focusing on companies with tangible applications, strong commercialization prospects, and solid fundamentalsWhile AI presents long-term opportunities, he warns against valuation bubbles and rapid technological shifts that could impact short-term market sentiment.
Will DeepSeek Define A-Share Market Trends in 2025?
The critical question facing investors is whether DeepSeek will emerge as the defining theme of China’s A-share market in 2025. Liu Bosheng argues that AI represents the next industrial revolution, driving significant economic and social transformations
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