1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Qianhai Securities Limited View HSBC Qianhai Securities Research at:https:/ Equity Research Report Deep

2、Seek to drive AI application Gaming and AI vertical applications are the fields that will benefit the most We prefer Kingnet Network and Ultrapower,both rated Buy DeepSeek to drive AI application.We previously suggested that the advancement of AI technology would arouse investors enthusiasm for the

3、AIGC sector(see China Media:AIGC:A game changer for content generation,12 April 2024).DeepSeek-R1,launched in January 2025,is a driver for AIGC application thanks to its open source model,low cost of use and strong reasoning capabilities.We believe DeepSeek will help developers apply AIGC to content

4、 production of games,films and TV series,and it will spur the emergence of more AI applications and commercialisation.Gaming and AI vertical applications can benefit the most.Gaming:AIGC can produce games swiftly at a low cost.We expect AIGC to reduce R&D costs by 41%in the next five years.In additi

5、on to reducing costs,we expect AIGC to provide a better experience for players,thereby increasing gaming time and increasing their willingness to pay.AI vertical applications:DeepSeek,as a low-cost and more accurate large model,will help the development of AI applications.There are many AI applicati

6、ons in the market,such as AI search and AI image processing.If the number of AI app users grows rapidly,it will contribute earnings to the related companies.Risk:Focus on whether earnings growth materialises.AI technology will bring huge changes,and could trigger a re-rating of the sector.However,th