The recent breakthroughs in China’s artificial intelligence (AI) technology, as exemplified by DeepSeek, will bolster profits of the AI-intensive financial sector as it substantially reduces labour costs, according to UBS.
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With every 10 per cent decrease in labour costs brought about by generative AI, the brokerage industry could see an 8 per cent increase in net profit, and the insurance industry could receive a 13 per cent boost, Craig Cao, a financial analyst at UBS Securities, said during a webinar on Wednesday.
The Swiss bank expects valuations of brokerage and insurance stocks to rise by as much as 21 and 18 per cent, respectively, this year.
“AI is fundamentally disruptive, especially for [large language model]-intensive jobs,” Cao said. “When comparing across industries, the financial sector remains the leader in language-based roles.”
DeepSeek-R1, an open-source reasoning model released by the Hangzhou-based start-up on January 20, has made waves in China and abroad as it showed capabilities comparable to those of models from OpenAI, Anthropic and Google, but with significantly lower training costs.
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Cao said that while the current implementation rate of generative AI across all industries was less than 10 per cent, the use cases in financial institutions accounted for as much as 37 per cent of the total in 2023 and 2024.