Chinese tech and EV stocks surged Friday after AI startup DeepSeek unveiled its upgraded V3.1 AI model designed to run on domestic chips, igniting optimism around Beijing's drive for AI independence just as Nvidia (NVDA  ) halted production of its China-only H20 chip.

Alibaba Group (BABA  ), Baidu (BIDU  ), PDD Holdings (PDD  ), NIO (NIO  ), Li Auto (LI  ), and XPeng (XPEV  ) all climbed on the news, reflecting renewed confidence in China's AI ecosystem.

Chinese AI startup DeepSeek launched its upgraded V3.1 model on Thursday. The model is designed to run on domestic chips as China accelerates its push to reduce reliance on U.S. firms like Nvidia.

It introduces faster processing, a new FP8 precision format, and a hybrid inference structure that switches between reasoning and non-reasoning modes.

DeepSeek added a "deep thinking" button to its app and web platform, now powered by the upgrade, and announced new API pricing for developers starting Sept. 6. By optimizing for next-generation local chips, the company positions itself at the center of China's AI self-sufficiency drive.

The move follows DeepSeek's earlier struggles with Huawei's Ascend processors, forcing it to train on Nvidia chips. Despite those hurdles, DeepSeek shook markets in January when its R1 model triggered a $600 billion Nvidia sell-off.

Meanwhile, Nvidia has halted production of its H20 AI chip for China, telling suppliers like Amkor Technology (AMKR  ) and Samsung (SSNLF  ) to suspend work as Beijing pressures firms to adopt domestic processors.

Chinese regulators recently summoned companies, including Tencent (TCEHY  ) and ByteDance, warning against heavy reliance on U.S. chips and pushing a shift to Huawei and Cambricon hardware. The move follows U.S. Commerce Secretary Howard Lutnick's remarks on restricting top-tier AI technology sales to China.

Chinese stocks are climbing as investor sentiment improves, U.S. trade tensions ease, and Beijing rolls out market-friendly policies. The government's push to curb price wars, support tech ambitions, and encourage long-term funds is drawing households and institutions into equities, especially with real estate weak and bond yields low, Bloomberg reported on Friday.

Price Action: In premarket trading Friday, BABA stock rose 2.15% to $120.63, PDD gained 4.02%, NIO jumped 5.96%, and XPEV advanced 1.85%.