Can These 3 Chinese Tech Stocks Beat DeepSeek?

DeepSeek’s debut shook US markets, but these Chinese firms could be set to steal some of the spotlight.

Feb 18, 2025

The attention around DeepSeek is driving increased interest in Chinese equities;
Alibaba and Tencent have begun offering DeepSeek models on their cloud computing platform, while Baidu is pivoting to open-source models;
Even as competition heats up in the market, investments in AI look unlikely to boost revenue growth in the near term.

The emergence of DeepSeek in January prompted questions about what small, cheaper and faster large language models (LLMs) could mean for the artificial intelligence (AI) race.

While it triggered a broad selloff in US-listed stocks with exposure to the AI theme, Chinese equities have continued to power on.

The tech-heavy Nasdaq Composite is up 4.92% in the past month; by contrast, the Hang Seng Tech index, which holds the 30 largest Hong Kong-listed companies including Alibaba [BABA], Baidu [BIDU] and Tencent [TCEHY], has surged 27%.[1]

Initial reports suggested that DeepSeek’s latest AI model was trained for just $6m. However, industry intelligence firm SemiAnalysis has published research which estimates that DeepSeek’s hardware spend could actually be as much as $500m.^[2]

Nonetheless, the competition provided by DeepSeek is helping to put Chinese equities in the spotlight.

China's Generative AI Market Size, 2018-30

“The global attention on DeepSeek can spur investors to reassess China’s innovation capacity, and which in our view could be a rerating catalyst for the Chinese equity market this year,” wrote HSBC analysts in early February.^[3]

Deutsche Bank analyst Peter Milliken thinks “2025 is the year the investing world realizes China is outcompeting the rest of the world”.^[4]

Investors pivoting to Chinese equities “will struggle to get access to its stocks without bidding them up,” he added.

Here, we take a look at how Alibaba, Baidu and Tencent are seeking to outdo — but also collaborate with — DeepSeek.

Alibaba

At the end of January, on the first day of China’s lunar new year holiday, Alibaba Cloud launched an updated LLM, Qwen 2.5-Max.

The company’s Qwen team claimed in a blog post that its new model outperforms DeepSeek-V3, Microsoft-backed [MSFT] OpenAI’s GPT-4o and Meta’s [META] Llama 3.1.^[5]

Reports on February 10 suggested that Alibaba will be offering customers access to DeepSeek LLMs. The company has denied rumors that it would be investing in the start-up.^[6]

Baidu

With competition ramping up in the LLM space, Baidu has decided to make its Ernie chatbot free to users from April 1, according to a Reuters report on February 14.

The LLM will also be made open-source from June, which means other companies will be able to use Ernie to develop their own models.^[7]

Baidu CEO Robin Li has previously argued that closed-source development is important for AI to become cost-effective.^[8] However, the emergence of DeepSeek could have changed his mind.

Tencent

Tencent’s cloud business has made DeepSeek models available to users through its cloud service platform.^[9]

The tech giant also announced on February 16 that it is allowing some users of Weixin, China’s most popular messaging app, to experiment with DeepSeek-enabled AI search.^[10] According to the Reuters report, Tencent is looking into integrating DeepSeek’s LLM into other products and services, including Yuanbao, a chatbot powered by its proprietary Hunyuan LLM.

Chinese Tech Stocks Power On

The Alibaba share price recorded a 52-week high on February 14 following reports that the company will partner with Apple [AAPL] to bring AI features to iPhones in China.^[11] The stock has surged 54.87% in the past month.

Baidu and Tencent’s share prices are up 24.72% and 31.05% in the past month. Their most recent closing prices were 16.15% and 0.06% below their 52-week highs, respectively.

BABA vs BIDU vs TCEHY Past 12 Months Performance

Here is how the fundamentals of the three stocks compare.

Despite the excitement around AI, the revenue forecasts suggest that concerns about China’s economy and consumer spending could weigh on the stocks in the near term.

The Investment Case for Alibaba

The Bull Case

The strategic partnership with Apple could be a major tailwind for Alibaba’s cloud business. While the unit’s revenue was up 7% in Q2 on AI growth,^[12] demand for its cloud services is nowhere near as high as it was in 2021 and 2022.^[13]

Wedbush analyst Dan Ives estimates that 100 million iPhone handsets in China are ready for an upgrade.^[14] This could lead to a significant uptick in revenue for Alibaba Cloud.

The company reports Q3 earnings on February 20.

The Bear Case

Alibaba could face a number of headwinds. Most noticeably, its e-commerce revenue from Tmall and Taobao has struggled in recent quarters amid a consumer slowdown, rising by less than 1% year-over-year in the July–September period.^[15]

There is also the risk that the company could get caught up in the turbulence of US President Donald Trump’s tariffs and any further geopolitical tensions between Beijing and Washington.

The Investment Case for Baidu

The Bull Case

Baidu is doubling down on AI. In the Q3 earnings release back in November, CEO Li said the company would “remain steadfast” in its AI investments in order to scale projects and create value from them.^[16]

Speaking at the 2025 World Government Summit in Dubai with the UAE Minister of State for AI, Omar Sultan Al Olama, Li defended the company’s approach.^[17] “Innovation can’t be planned … You don’t know when and where the innovation comes. What you can do is just to foster an environment that is conducive to innovation.”

The company beat expectations with its Q4 earnings reported on February 18, recording a smaller-than-expected revenue drop.[18]

The Bear Case

Notably, the company lost $2.4bn in market value on February 17 as shares slid following Li’s conspicuous absence from a high-profile meeting between China’s President Xi Jingping and corporate leaders.[19]

As competition in China’s AI market heats up, Baidu is still struggling to boost growth, with Q4’s 2% drop in revenue coming on the back of a 3% decline in Q3.^[20]

“China’s LLM price war likely cost the firm’s market share last year,” noted Bloomberg Intelligence.^[21]

Beyond the Q4 results, it will likely be a few years before its AI projects turn profitable, the analysts added.

The Investment Case for Tencent

The Bull Case

When Tencent last reported back in November, it signaled a recovery in China’s gaming market, traditionally its biggest revenue driver, fueled by Beijing’s stimulus measures announced in September and October.

Revenue from domestic gaming grew 14% year-over-year in Q3,^[22] up from a 9% growth rate in Q2^[23] and a 2% decline in Q1.^[24]

The Bear Case

Despite Tencent’s attempts to keep pace with competitors, monetizing AI is slow at present.

“The AI revenue in China on the cloud side is somewhat at scale for us, but I think it will not be exploding like in the US,” said Tencent President Martin Lau on the Q3 earnings call in November.^[25]

The company is due to report on March 19.

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Conclusion

Alibaba, Baidu and Tencent are key players in China’s AI race. But while the country’s big tech stocks vie for dominance, especially in the face of competition from DeepSeek, investments are unlikely to pay off in the near term.

This is for informational purposes only. OPTO Markets LLC does not recommend any specific securities or investment strategies. Investing involves risk and investments may lose value, including the loss of principal. Past performance does not guarantee future results.

[1] https://www.hsi.com.hk/eng/indexes/all-indexes/hstech

^[2] https://semianalysis.com/2025/01/31/deepseek-debates/

^[3] https://www.morningstar.com/news/dow-jones/202502073112/deepseek-breakthrough-fuels-rally-in-chinese-tech-stocks-update

^[4] https://www.bloomberg.com/news/articles/2025-02-07/chinese-tech-stocks-near-technical-bull-market-on-deepseek-hype

^[5] https://qwenlm.github.io/blog/qwen2.5-max/

^[6] https://www.scmp.com/tech/big-tech/article/3298067/alibaba-offers-more-deepseek-ai-models-low-prices-denies-investment-rumours

^[7] https://www.reuters.com/technology/artificial-intelligence/baidu-make-ernie-ai-model-open-source-end-june-2025-02-14/

^[8] https://pandaily.com/baidu-ceo-robin-li-the-closed-source-model-will-continue-to-lead-in-capabilities/

^[9] https://www.globaltimes.cn/page/202502/1327757.shtml

^[10] https://www.reuters.com/technology/artificial-intelligence/tencents-messaging-app-weixin-launches-beta-testing-with-deepseek-2025-02-16/

^[11] https://www.reuters.com/technology/artificial-intelligence/alibaba-chairman-confirms-ai-partnership-with-apple-chinese-iphones-2025-02-13/

^[12] https://data.alibabagroup.com/ecms-files/1532295521/0cfe1fbc-94d9-4e25-a163-7e9fcab9fcb8/Alibaba%20Group%20Announces%20September%20Quarter%202024%20Results.pdf