The surge of DeepSeek, a two-year-old Hangzhou-based startup creating open-source large language models at much lower costs than foreign peers, has not only led to rising global investor interest in Chinese artificial intelligence companies, but also their bullish outlook on the Chinese tech sector in general.

As Galaxy Securities has calculated, foreign investors have shown particular interest in companies on the CSI A500 Index, which is comprised of industry leaders from emerging sectors such as information technology and communication services.

As of Friday, foreign investors held about 1.77 trillion yuan ($240 billion) in CSI A500 company shares, accounting for 3.85 percent of these firms' combined publicly listed shares' market value. On average, foreign investors' holdings are equal to 1.86 percent of the A-share market's total value. Core assets of the CSI A500 Index are likely to attract more foreign capital inflow, which usually focuses on high liquidity and rapid growth markets, said Galaxy Securities analysts.

The benchmark Shanghai Composite Index closed up 0.85 percent on Wednesday while the CSI A500 Index gained 1.08 percent.

Likewise, the Nasdaq Golden Dragon China Index, which tracks US-listed Chinese companies, has jumped more than 6 percent since the beginning of February, while the Hang Seng TECH Index has spiked 9 percent.

While global investors tend to have significantly underweight takes on Chinese assets and their exposure to China is still "minimal "at present, they will "have to make a significant shift toward Chinese shares in the medium term, and it may be difficult to acquire these stocks without pushing up share prices", Peter Milliken, director of equity research for Deutsche Bank AG in Hong Kong, wrote in a report on Feb 5.

"We have been bullish on Chinese stocks but have been struggling to find the catalyst that would wake up the world and buy into Chinese stocks, and we think China's 'Sputnik moment' (or something like dominance in electric vehicles) is that catalyst ... We believe the bull run in Hong Kong/Chinese mainland equities began in 2024 and will exceed previous highs in the medium term," wrote Milliken.

Holding a stronger preference for Chinese equities over US stocks this year, David Chao, global market strategist for Asia-Pacific (ex-Japan) at global investment management company Invesco, said prices of Chinese companies, especially tech companies, are heavily discounted if compared to their US counterparts. Similar to the narrowing gap in the development of AI, such valuation differences will become increasingly smaller.

DeepSeek's breakthroughs achieved at extremely low cost have pointed to the fact that Chinese companies are able to innovate, especially when it comes to software, he added.

As UBS has noticed, AI-related Chinese shares have seen their prices surge by an average of 15 percent since the beginning of the year, outrunning the average 9 percent increase of the MSCI China Index over the same period.

Past experience shows that tech-driven rebounds will drive up share prices even before the companies see the breakthroughs make a big difference on their balance sheets, said James Wang, head of China Strategy for UBS Investment Bank Research.

Desmond Kuang, chief investment officer for China at HSBC Global Private Banking and Wealth, said the success of DeepSeek has invigorated investor appetite, showing the increasing competitiveness of China in terms of technological innovation.