In recent months, the financial landscape has witnessed the remarkable emergence of the DeepSeek+ concept, capturing the attention of various capital marketsAmong all the places benefiting from this new trend, it is the Hong Kong stock market that stands out, particularly the tech stocks within itThese stocks have undergone a remarkable reevaluation, marking a new era for investors and technology enthusiasts alike.

Since February, the performance of the Hong Kong stock market has outshined its global counterparts by a wide marginThe Hang Seng Index recorded an impressive gain of over 16%, while the Hang Seng Tech Index surged by more than 24%. Individual tech stocks have seen even steeper increases, with many climbing over 50%. For example, the shares of 21Vianet Group skyrocketed by 130%, while firms like Kingsoft Cloud and Tuya Smart secured gains exceeding 80%. This astonishing surge is largely attributed to the rise of DeepSeek, which has ushered in unparalleled advancements in AI capabilities.

DeepSeek's introduction has transformed the market with its core focus on high performance, low cost, and the benefits of open-source technology, thus facilitating the quick application of AI in both gaming and cloud environmentsThe gaming industry, a major sector in AI applications, has garnered substantial attentionAmong the players in this arena, NetDragon Websoft Holdings has emerged as a sleeper hit on the Hong Kong Tech marketWhile the company's stock only rose by 25% in February, which is still significantly below the sector average, its potential remains largely untapped by investors.

NetDragon has been investing in AI research since 2017, proactively disclosing in its 2023 mid-year report how its gaming business was pioneering AI developments, including research in AI-enhanced non-playable characters (NPCs) and AI companionship features in gaming contextsIn the past two years, the company has fully integrated its AI strategy into various operational segments, and with the advent of DeepSeek, it quickly incorporated the technology into its gaming modules.

Through its “AI + Gaming” strategy, NetDragon has not only optimized operational costs by making its game development processes more efficient, but it has also utilized AI in innovating product content, thereby extending product lifecycles and addressing player needs

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The impact of these initiatives is evident—by mid-2024, the company's gross margin rose to 66.62%, reflecting a steady upward trend over the previous yearsThis trajectory of improvement is complemented by reduced marketing expenses, which effectively lowered the company's overall sales cost from 12.01% in 2022 to about 10.66% in the first half of 2024.

Moreover, in the realm of cost reduction and efficiency enhancement, NetDragon has seamlessly integrated DeepSeek and similar advanced AI tools into key operationsIts programming department has reported substantial improvements in code writing and review processes, considerably boosting the efficiency of game codingIn game operation management, the firm has deployed AI-driven anti-cheat systems, significantly improving the identification of cheating software and enhancing the player experience.

Beyond operational efficiencies, the introduction of DeepSeek has facilitated innovations in game design, marketing, and customer serviceBy fully leveraging cutting-edge AI tools, NetDragon has improved marketing resource efficiency while significantly cutting back on sales costsIn customer service, the introduction of AI troll options has improved player interaction and reduced labor costs.

Looking ahead, the company's core products, including popular titles like “Spirit of the Dragon,” “Conquer Online,” “Heroes of the Earth,” and “Shattered Oath,” are well-positioned to thrive as they tap into AI growth trendsNetDragon has also announced the upcoming release of new games targeting international markets, including “Project Dragon” and “Shattered Oath.” These titles are expected to launch in Southeast Asia and Japan within the year, while the highly anticipated "Star Sea Assault" is slated for global release in 2026, potentially appealing to a vast user base.

In particularly exciting developments, NetDragon is innovating within its key MOBA product, “Heroes of the Earth,” by integrating AI agent companions that can mimic high-level player strategies and enhance gameplay across multiple hero options

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Additionally, the company is nurturing a “mysterious team” focused on crafting an open-world game heaving with AI-driven NPC interactions and narrative crafting, marking a substantial shift toward the incorporation of AI-native gameplay.

As for the capital markets, particularly following the Lunar New Year, the impact of DeepSeek on the Hong Kong tech stock rally has been unmistakableNetDragon, as a lead player applying AI at the forefront of gaming and education, stands as one of the stocks expected to resonate with investors, especially as the broader market moves into a phase where detailed examinations of mid-sized stocks become prevalent.

Beyond gaming, NetDragon's proactive investment strategy has recognized the potential of AI technology to transcend sectorsThe company has directed considerable investments toward pioneering entities in the tech frontier, including ROKID, which is gaining traction for its AI-integrated eyewear industryThis collaboration underlines NetDragon's 200 million USD investment plan aimed at comprehensive growth within the tech ecosystem.

ROKID's AI-enhanced AR products, showcased at the CES 2025, are set to pave the way for augmented reality’s transformative experienceTheir integrated products, such as the Rokid Glasses, illustrate the unprecedented possibility of accessing and analyzing information in real time, effectively bridging the gap between the physical and digital worlds.

As DeepSeek continues to drive the bullish trends in tech stocks, a corrective cooling in valuations across many star players suggests investors may switch focus to exploring the growth potential within smaller-cap stocksAmong them, NetDragon’s commitment to the “AI + Gaming” and “AI + Education” paradigms, coupled with a proven track record in strategic investments, positions it as an exceptional contender in the evolving market landscape—most likely to capture the renewed interest of investors.

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