Low-Cost AI Draws Investors Back to China’s Internet Giants

DeepSeek’s release of its low-cost, open-source R1 reasoning model in January 2025 challenged the assumption that progress in generative AI requires massive capital spending. Cheaper inference could accelerate corporate adoption and increase usage, broadening the potential winners beyond chipmakers and data-center operators to software, advertising, gaming and cloud platforms. That shift has brought Alibaba Group Holding and Tencent Holdings back into focus as investors reassess China’s internet sector.

By Feb. 13, 2025, Chinese internet shares had rallied nearly 25%, according to UBS. Alibaba’s Hong Kong-listed stock gained 4.8% that day, extending its advance since mid-January to more than 52%. Investors were also betting that Tencent could monetize AI through advertising, games and cloud services. Citing stronger prospects for domestic innovation and adoption, UBS raised its year-end target for the MSCI China Index to 77 from about 70.