Accessing DeepSeek, Tencent also needs to reassess

Author | Huang Yu

Editor | Zhang Xiaoling

In this wave of AI, Tencent's release of FOMO (Fear of Missing Out) sentiment is not strong, but after DeepSeek became popular, Tencent has become the most actively embracing major company, not only launching the DeepSeek model on Tencent Cloud but also becoming the first major vendor to introduce DeepSeek into its main C-end products.

Five days after Tencent's AI assistant "Yuanbao" officially announced the integration of DeepSeek-R1, on February 15, Wall Street News confirmed from Tencent that WeChat Search has recently officially entered the gray testing phase of integrating DeepSeek-R1.

Tencent has its own self-developed Hongyuan large model, and the WeChat search team has also been experimenting with AI search using the Hongyuan large model since last year. The choice to integrate the open-source and market-validated DeepSeek-R1 model not only helps the rapid implementation of AI search capabilities within the WeChat ecosystem but is also an inevitable move for WeChat to widen its moat, ensuring it does not fall behind in the AI search wave.

The same AI narrative logic will play out in more of Tencent's businesses, reflecting that Tencent's AI strategy is not confined to self-development but focuses more on application.

The emergence of DeepSeek-R1 has triggered a global capital reassessment of Chinese technology assets. Tencent's embrace of DeepSeek is both a breakthrough in technological positioning and a reshaping of capital narratives.

The model democratization brought by DeepSeek will disrupt the AI competitive landscape, with the focus of competition in the AI field gradually shifting to the integration of data and scenarios, which is precisely Tencent's competitive advantage.

With a large user base and rich AI application scenarios, Tencent will undoubtedly open up more imaginative space, becoming a core target for capital markets to reassess Chinese assets.

The Chinese internet industry is undergoing a new round of reshuffling, and to maintain its "throne," Tencent must not be complacent.

Disrupting Search

Since the release and open-sourcing of the DeepSeek-R1 model less than a month ago, several cloud vendors and various industry entities have integrated or fused products with this model, but none of these integrations can compare to WeChat, which has over 1.3 billion monthly active users, making its integration particularly noteworthy.

This is a combination of the "top stream" of the mobile internet era and the "hot chicken" of the AI era. After the news broke, it continued to ferment, with some investors believing that compared to Yuanbao, the integration of DeepSeek into WeChat, as China's largest national-level app, is of extraordinary significance, with an influence that may not be less than Apple's recent choice to integrate Alibaba's Tongyi Qianwen.

Tencent stated to Wall Street News that WeChat users included in the gray testing can see the "AI Search" label at the top of the dialogue box search entry. By clicking in, they can use the full version of the DeepSeek-R1 model for free, gaining a more diversified search experienceUsers have reported that the current WeChat AI search experience is still quite lightweight, as it not only does not support multi-turn conversations but also does not allow the uploading of various file contents to assist in questioning and searching, and even does not support viewing historical Q&A records.

Nevertheless, WeChat has already taken a significant step in AI search.

In the implementation of AI search, although it has the advantage of ecological information sources such as WeChat Official Accounts and Video Accounts, WeChat is undoubtedly cautious. Previously, it only piloted the addition of AI Q&A functions in search. The integration of DeepSeek-R1 will undoubtedly accelerate the full-scale push of WeChat's AI search function, helping WeChat seize user mindshare in this AI competition.

Several industry insiders have pointed out that AI search is considered the most promising field for the emergence of killer applications, and it has become the darling of large models in the past two years. It can be said that wherever there is a search box, there is a battlefield for AI search.

Now that WeChat has introduced AI, the search war will once again unfold, spreading throughout the entire technology industry. The positions of traditional search engine giants like Google and Baidu are bound to be shaken, and future searches will no longer be dominated by entities like Google, Baidu, and 360, but will evolve into entirely new forms.

For the traditionally "conservative" WeChat, choosing to integrate the DeepSeek model is undoubtedly the right choice. It not only brings top-tier AI capabilities to WeChat search but also has the advantage of low costs, which is very important for the massive traffic of WeChat.

After taking a bold step in AI search, Tencent may subsequently endow it with more capabilities, evolving into an intelligent assistant, with multimodal capabilities such as voice, images, and videos potentially being introduced into the search.

More imaginatively, WeChat has a vast database of personal life and services. As the core connector of the entire WeChat ecosystem, the search function is expected to accurately identify user intentions and call upon various services and functions within the WeChat ecosystem, such as mini-programs, official accounts, and WeChat stores, becoming a super AI agent as the AI search function is deeply integrated.

In addition, WeChat AI search may also interact with other Tencent products to create synergistic effects.

In recent years, the commercialization value of the WeChat ecosystem has been accelerating, and with the addition of intelligent agents, users will be able to accomplish more within WeChat, further enhancing its irreplaceability. This will bring Tencent a new point of commercial growth.

The integration of DeepSeek-R1 by WeChat is a key layout for Tencent in the AI era and will stir the dynamics of the search market and the AI application competition.

Reinvesting in AI

Seizing the model democratization opportunity brought by DeepSeek, Tencent is taking frequent actions.

In fact, Tencent's investment and layout in the AI field are not less than Alibaba's, especially in cloud computing and large models. Now, Tencent's large model is also openly embracing DeepSeek.

First and foremost is Tencent Cloud. As early as February 2, Tencent Cloud announced the launch of the API interface for DeepSeek-R1 and V3 models, and achieved "one-click deployment in 3 minutes" through its high-performance application service (HAI), significantly lowering the threshold for developers to call.

A few days ago, Tencent Yuanbao announced the integration of DeepSeek-R1, allowing users to freely switch between Tencent's mixed large model and DeepSeek-R1 when selecting modelsAccording to Wall Street News, Tencent's QQ Music and other businesses have integrated with DeepSeek.

Wall Street News learned from Tencent insiders that Tencent is now embracing not only DeepSeek but also AI that can provide users with the best experience, regardless of whether it is self-developed or invested in. In short, "everything is based on user value."

Industry insiders told Wall Street News that for Tencent, this is a pragmatic strategy. Integrating DeepSeek meets user needs and can quickly attract new users. It can also be understood as a horse racing mechanism that can force the upgrade of self-developed models.

Clearly, even if Tencent chooses to integrate third-party models, it will continue to invest in self-developed large models.

There is no doubt about Tencent's emphasis on AI large models, but it is quite cautious.

At Tencent's 2023 shareholder meeting, Tencent's Chairman and CEO Ma Huateng stated that AI large models represent an opportunity that comes once in hundreds of years, akin to the industrial revolution that invented electricity. However, for the industrial revolution, it is not so important to bring out the light bulb a month earlier; the key is to solidly develop the underlying algorithms, computing power, and data, and even more crucially, to implement it in real-world scenarios.

Ma Huateng also mentioned at that time: "I feel that many companies are too anxious now, seemingly to boost their stock prices. We have never been this kind of style."

In the past two years of advancing large models, whether in terms of the launch time of self-developed large models or the release rhythm of AI native applications, Tencent seems to be the least hurried among the major internet companies. It is not only the last among BAT to present its large model but also only launched its consumer-facing AI assistant app, Tencent Yuanbao, last May.

Unlike many major companies that are rushing to attract users and traffic, Tencent Yuanbao seems to be in no hurry to recruit users since last year. According to QuestMobile data, as of last December, ByteDance's Doubao had already become the AI native application with the most monthly active users in China, reaching 75.23 million, while Tencent Yuanbao only had 2.11 million, ranking eighth.

Now that DeepSeek has emerged, it has reshuffled the entire AI industry, making the competition for AIGC products seem to return to the same starting line. Shen Dou, President of Baidu Intelligent Cloud Business Group, even stated that the product most affected by DeepSeek's momentum is Doubao, due to its high training and traffic costs.

However, Tan Dai, President of ByteDance's Volcano Engine, responded through social media, stating that the price reduction of large models is achieved through technological innovation, and everyone should focus on the fundamentals like DeepSeek and refrain from baseless speculation.

Clearly, DeepSeek has stirred the competition among domestic large models, prompting all large model vendors, including Tencent, to accelerate evolution and upgrades. Companies will be forced to speed up research and iteration to avoid being left behind in performance.

At the same time, the competition's approach may change due to DeepSeek's open-source nature—no longer building in isolation but rather more open collaboration.

However, although DeepSeek has become a sensation, compared to national-level applications like WeChat, Douyin, and Weibo, which have hundreds of millions of users, it is still far from being a super application. Now, Tencent is expected to quickly realize value monetization based on its vast user base and rich scenario advantagesAt the beginning of this year, Ma Huateng stated at the annual meeting that Tencent would continue to invest resources in computing power reserves, hoping that various business groups (BGs) could embrace the productization of large models. Currently, products including WeChat, QQ, input methods, and browsers will launch AI intelligent agents.

Stock price soaring?

Since February, benefiting from the explosive popularity of DeepSeek and being selected by Apple, Alibaba's Hong Kong stock price has risen by over 40%, reaching a nearly three-year high. Although Tencent's Hong Kong stock price has also risen significantly, its performance is not as good as Alibaba's, with a price increase of only 18% during the same period.

WeChat + DeepSeek will undoubtedly shift the focus of capital market re-evaluation more from Alibaba to Tencent. The market is already speculating how much Tencent's stock price will rise.

Since 2023, the inclusion of "AI" has become an important indicator for evaluating a technology company in the capital market. This not only relates to whether it can reshape its business with AI but also affects its future market prospects.

In the AI boom, the first logic for re-evaluating Tencent is cost reduction and efficiency improvement. A securities analyst told Wall Street Insight that AI essentially serves to reduce costs and improve efficiency, so applying large model capabilities to its own business scenarios first is a relatively low-risk and easily observable path for AI commercialization.

At the same time, analysts from Western Securities pointed out that Tencent's ecosystem has rich AI application scenarios and is expected to achieve continuous growth in users and revenue through AI.

In its third-quarter financial report last year, Tencent already indicated that it continues to deploy AI in products and operations, including marketing services and cloud services, with increasingly visible benefits.

To empower more businesses with AI, Tencent is now very open and pragmatic, and the integration of DeepSeek is the best proof, which will also increase capital market confidence in Tencent.

Some investors believe that with its self-developed large model, Tencent is willing to integrate better models on WeChat for user experience, making its management team more optimistic.

The other two logics for re-evaluating Tencent are the growth space for cloud computing brought by massive calls and the potential for Tencent to create the next super traffic entrance.

Under the leadership of DeepSeek, the depth and breadth of domestic AI application promotion are expected to be further strengthened, leading to a more prosperous application side and consequently more demand for cloud services. As a leading domestic cloud service provider, Tencent Cloud is expected to benefit from market dividends, while the incremental growth brought by WeChat's use of DeepSeek also has significant potential.

China Merchants International is optimistic about the Hong Kong stock AI and technology sectors, especially under the promotion of domestic large models like DeepSeek, as AI infrastructure providers and computing power-related targets are entering a valuation reconstruction window.

UBS recently released a research report stating that although Tencent has not been as active as its peers in releasing language large models (LLMs), Tencent possesses a comprehensive database, a large user base, high-quality content, and application scenarios within the WeChat ecosystem, which may be underestimated by the market. Therefore, it believes Tencent has the ability to quickly catch up with its peers and become a market leader.

In the mobile internet era, Tencent is an absolute winner, firmly holding the position of "King of Chinese Tech Stocks" with its two major moat businesses: social networking and gaming. At the beginning of 2021, its stock price once exceeded HKD 700 per share, with a market value exceeding HKD 7 trillion. However, later it faced significant declines in stock price due to internet regulation and sluggish growth in its own businessIt wasn't until last year that it began to rebound.

Now, large models are accelerating the arrival of the AI era, bringing a sense of crisis to Tencent while also presenting an important opportunity to return to its peak. With the enhancement of WeChat gift-giving and the e-commerce features of video accounts, Tencent is no longer the Tencent that was once labeled as just gaming and social networking.

In the face of this "Fourth Industrial Revolution," Tencent is expected to become the creator of "AI for all." This will become a new anchor point for Tencent's market value to reach 5 trillion or even higher