The recent buzz in the AI sector has been nothing short of phenomenal, particularly with the rise of the DeepSeek concept. This wave of excitement has been further escalated by responses from two of China’s technological behemoths—Tencent and Baidu—who have fanned the flames of investor enthusiasm and ignited a flurry of activity in the capital markets.

At the heart of this fervor is WeChat, Tencent's flagship product and a crucial channel for traffic. The announcement regarding the testing of the DeepSeek-R1 model became an instant point of interest, making headlines across various platforms. Users fortunate enough to access the updated version of WeChat discovered an innovative new feature—an "AI search" function—capable of transforming their experience.

Although Tencent has stated that this is merely a technical trial, the market senses a much larger intention behind it. The incorporation of DeepSeek into multiple Tencent product lines suggests a significant shift towards the commercialization of AI technology. Observers interpret these developments as a sign that Tencent is gearing up to compete aggressively in the AI sector. In a fiercely competitive landscape, the strategic implementation of new technologies can often determine a company's trajectory in the market.

DeepSeek-R1, which has been introduced in WeChat, is a standout performer in the realm of AI. It boasts low training costs while matching the capabilities of leading global models, making it an attractive proposition within the industry. It’s no wonder that multiple companies have eagerly expressed interest in collaborating with Tencent on this venture.

In response to the news, the stock market experienced a significant surge. By the time of this report, companies such as Weimob, Meitu, China Unicom, and Tencent Holdings saw gains of over 11%, 10%, 6.8%, and 5.22%, respectively. Tencent's stock price climbed to 512 Hong Kong dollars, marking its best performance since October 21, 2021. The bullish investor sentiment underscores strong confidence in Tencent's strategic positioning within the AI landscape.

However, Tencent is not the only firm eyeing the potential of DeepSeek. Since February, other major players such as Huawei Cloud, Alibaba Cloud, 360 Digital Security, and Volcano Engine have announced their own integrations with DeepSeek. This wave of platform adoption has sparked what analysts are calling a “integration frenzy” around DeepSeek.

Furthermore, Baidu has swiftly followed suit by announcing the full-scale incorporation of DeepSeek and its own Wenxin model's latest deep-search capabilities into its search engine. The Wenxin AI platform will also seamlessly integrate DeepSeek, facilitating developers’ access to various modeling capabilities, thereby enhancing their ability to create and optimize intelligent agents. The rush of these developments illustrates how DeepSeek has garnered traction within the AI core circle, rendering it an indispensable component in the AI ecosystems of these tech giants.

As the technological landscape transforms with the advancements brought by DeepSeek, the competition in the AI sector has quietly shifted into a new phase characterized by "model iteration plus ecosystem expansion." The focus has moved from isolated model competition to collaborative ecosystem synergy, a trend that is evidenced by the rapid onboarding of DeepSeek by industry leaders like Baidu, Alibaba, and Huawei.

Tencent's unique dual advantage is becoming increasingly evident in the light of this transformation. On one hand, collaborating with DeepSeek allows Tencent to swiftly address its shortfalls in model capabilities, leveraging existing strengths to enhance its technological prowess. On the other hand, Tencent’s diverse portfolio—encompassing WeChat, gaming, finance, and beyond—provides ample space for deploying DeepSeek’s applications, creating a differentiated competitive edge that enables this technology to truly come to life and serve users.

From an investment perspective, recent capital flows indicate that southbound funds have accumulated more than 5 billion Hong Kong dollars in Tencent's shares over the past month. This surge reflects long-term investors’ recognition and support of Tencent's strategic transformation, as they remain confident in the company's ability to navigate the AI wave and forge new growth trajectories.

If WeChat's AI search feature becomes widely available following its trial phase, it could lead to an immediate boost in advertising and cloud-related revenues, substantially benefiting Tencent’s bottom line. Moreover, the flourishing developer ecosystem catalyzed by open-source models might pave the way for new subscription service formats, presenting additional business opportunities for Tencent. Short-term, the attention surrounding the upcoming second-quarter financial report, especially in regard to capital expenditures related to AI investments, is particularly noteworthy as it will unveil Tencent's commitment and contributions within the industry. In the medium to long term, the critical metric for assessing the success of Tencent's AI strategies will be whether cost reductions in technology lead to improved profit margins.

Market analysts are overwhelmingly optimistic about DeepSeek's future. Research reports from institutions like CITIC Securities emphasize that the DeepSeek-R1 model is now competing among the world's elite as an open-source model, intensifying competition among AI firms and driving continuous innovation within the sector. With rapidly increasing user demand, the occurrence of "server busy" notifications has become more frequent, and Tencent's announcement to integrate DeepSeek is expected to drive an uptick in API request volumes and localized deployment needs, presenting new growth opportunities for related enterprises.

The advancements DeepSeek has made in reducing model training costs could prompt tech giants to adopt more economical methods for exploring and researching cutting-edge models. This, in turn, is likely to unlock and deploy numerous AI applications, effectively bringing AI technology into everyday life, transforming routines and workflows. Factors such as the increasing returns to scale specific to algorithm training and the implications of Jevons' Paradox on unit power cost reductions indicate that sustained large-scale investments in AI capabilities from tech giants remain probable in the near term, infusing continuous momentum into the industry’s growth.

The excitement surrounding the DeepSeek concept exemplifies the flourishing state of the AI industry. In this unspoken battle, giants such as Tencent and Baidu are strategically positioning themselves, and DeepSeek stands as a pivotal variable capable of shaking the market dynamics.