In the ever-evolving landscape of technology, the rise of DeepSeek is shifting the focus of investors towards the remarkable potential of Chinese technology companies, particularly in harnessing artificial intelligence (AI). As American tech giants soar in value, propelled by advancements in AI, observers are beginning to rethink their strategies regarding Chinese firms that stand on the brink of innovation.

Market analysts contend that the introduction of AI models can fundamentally alter the market dynamics for Chinese tech companies, along with how their stocks are perceived. Jian Shi Cortesi, a portfolio manager at Switzerland's Gam Investment Management, expressed how this shift is pertinent, saying, "While engaging with large Chinese internet companies, investors might pivot from 'risk consideration' to 'potential exploration'." This renewed focus could prove beneficial, especially considering the stark discounts at which these companies are valued in comparison to their American counterparts.

The forthcoming earnings season could serve as a catalyst for stock movement, especially if management discussions touch on advancements in AI models and the demand for cloud services. In the meantime, options traders are ramping up their stakes in Chinese tech stocks, which remain priced at historical lows. For instance, there has been a notable increase in options betting on the Hang Seng Tech Index, with trading volumes reaching their highest level since early October last week. On one particular day, nearly 6,500 call options were traded, almost double that of the put options.

Following a 9% rise last week, the Hang Seng Tech Index has entered a bull market. However, its current forward price-to-earnings (P/E) ratio is still under 17 times, significantly lower than the Nasdaq 100's 27 times P/E and beneath its own five-year average of 25 times. This divergence raises questions about valuation and the market's perceptions of risk and opportunity amidst geopolitical tensions and fierce competition in e-commerce and cloud businesses.

Investing in Chinese tech stocks has long been complicated by multiple factors, including intense rivalry in the technology sector and global geopolitics, which have often engendered wariness among foreign investors. According to Alex Au, managing director of Alphalex Capital Management, "The lack of interest and liquidity from foreign investors has contributed to the Chinese stock market revolving around a 'value trap.' Now, with DeepSeek sparking significant interest among foreign investors, the valuation gap should narrow."