To The Moon

💰 The U.S. Markets may see new highs this week. Meanwhile, Elon Musk introduced the Grok-3 model.

💹 $KUAISHOU-W(01024)$/$XIAOMI-W(01810)$/$NTES-S(09999)$: Investors are turning to Chinese equities to exploring new edgte.

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| Market recap

Last week, major U.S. indices continued their upward momentum. $S&P 500(.SPX)$ gained 1.5%, while $NASDAQ(.IXIC)$ rose 2.6%, with $Meta Platforms, Inc.(META)$ extending its streak to 20 consecutive sessions. Futures for key U.S. stock indices also indicated a broad rally ahead of today’s market open.

In the same period, $NASDAQ Golden Dragon China Index(HXC)$ surged more than 7%, leading a strong performance from stocks like $Alibaba(BABA)$ (+21%), $Kingsoft Cloud Holdings Ltd(KC)$ (+23%), and $Youdao(DAO)$ (+31%).

Megacaps

Waiting for Grok-3 reactions. Elon Musk’s xAI unveiled the Grok-3 model, claiming it outperforms all currently released products. Key features of the model include vastly improved reasoning, programming abilities, and multimodal functions for text and image analysis, with a sharp reduction in hallucinations. Musk also highlighted the immense computational power required for its training, surpassing that of previous models.

Looking ahead

As the market is getting immune to Trump’s rhetoric and no longer reacts with undue alarm, investors are increasingly focused on cost-effective opportunities in Chinese assets. Meanwhile, concerns about Musk’s heavy engagement in DOGE are surfacing. Has he lost sight of his initial goals? Can he stay focused on his core objectives?

Movers

AI stocks showed some divergence last Friday, though the AI healthcare sector remained a standout, with several stocks posting strong gains: $Recursion Pharmaceuticals, Inc.(RXRX)$ rose over 16%, $Beam Therapeutics, Inc.(BEAM)$ gained more than 13%, and $CRISPR Therapeutics AG(CRSP)$ jumped over 12%.

Top performers like $Roku Inc(ROKU)$ and $Airbnb, Inc.(ABNB)$ also saw impressive gains, each climbing over 14%.

| notable profits in intraday trading last Friday as well

| Taking off

On February 18, $HSTECH(HSTECH)$ rose 2.5%. Looking back at the previous week, the index gained 7.3%, up over 25% year-to-date, hitting a nearly 3-year high and outperforming major global indices.

The rise of DeepSeek, a Chinese AI start-up, is just beginning to create ripples in the market. Investors who had once underestimated China's potential are now reconsidering, while global interest in Chinese assets is deepening. DeepSeek's advances are making large-scale models smarter and more accessible, rapidly integrating into daily life. For instance, WeChat, China’s most popular app, recently announced its incorporation of DeepSeek. Musk has expressed multiple times his ambition to create a super app akin to WeChat.

As for U.S. tech stocks, they need more time to digest the inflated valuations. With ongoing uncertainty surrounding U.S. tariffs and macroeconomic policies, investors are hesitant to dive into high-priced U.S. tech stocks, further increasing the appeal of Chinese equities. The Chinese government’s more lenient approach toward tech companies has also fueled optimism in the market.

| Amid the AI boom

The market is quickly reassessing the potential impact of DeepSeek’s breakthroughs on the AI ecosystem at large. On February 18, leading performers in the HSTECH index included $KUAISHOU-W(01024)$ , $XIAOMI-W(01810)$ , and $NetEase(NTES)$ .

Kuaishou

$KUAISHOU-W(01024)$ ’s stock continued its upward trajectory on February 18, reaching an intraday high of HKD 59.8, closing nearly 10% up—its strongest performance in the 3 months streak.

UBS believes the market has yet to fully recognize Kuaishou’s AI value. The company’s Kling AI, a video generation model, is competitive on a global scale and holds significant commercialization potential. With over 6 million users, Kuaishou’s AI business is expected to drive substantial growth and enhance its overall performance.

The potential of AI in the film industry is becoming undeniable, especially with Nezha 2 entering the global box office top 10. Kling AI has already collaborated with 9 renowned Chinese directors, such as Jia Zhang-ke and Tim Ip, to launch the first AIGC co-creation program, further validating AI’s commercial prospects in entertainment.

Xiaomi

$XIAOMI-W(01810)$ ’s stock has hit a record high, up more than 40% since the start of the year. As a veteran in Chinese tech and a rising force, Xiaomi has been a major market driver. On February 17, founder Lei Jun spoke at a prestigious economic roundtable in Beijing, further sparking enthusiasm in the market.

Expectations are building for Xiaomi’s upcoming releases. By the end of February, the company will unveil its latest flagship smartphone and the new energy vehicle, the SU7 Ultra. The YU7 SUV, highly anticipated, is expected to launch in June, though rumors suggest an earlier release.

Xiaomi continues its product diversification. On February 28, it will launch a new central air conditioning system, going head-to-head with industry leader Daikin.

NetEase

Despite macroeconomic and policy uncertainties, China’s gaming industry remains a strong defensive investment, particularly for giants like $TENCENT(00700)$ and $NetEase(NTES)$ .

NetEase has actively integrated DeepSeek, enhancing NPCs in its games. On February 21, the company will launch its open-world MMO Justice, featuring NPCs powered by DeepSeek’s intelligent engine. This marks the first integration of DeepSeek into gaming, offering players an experience of “deep thinking.”

NetEase is set to release its Q4 results for 2024 on February 20, with high market expectations. Goldman Sachs predicts accelerated revenue growth compared to Q3, with even clearer prospects for 2025.

Stay tuned. Comment, like and subscribe to @Tiger_Contra

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