The stock market in China experienced a significant downturn on February 18, as all three major indices fell sharply, signaling shifting investor sentimentAnalysts noted a stark contrast from recent performance, with the Shanghai Composite Index dropping by 0.93%, the Shenzhen Component Index sliding by 1.61%, and the ChiNext Index, which focuses on innovation-driven enterprises, dropping by 1.98%. The trading volume for the day was substantial, reaching approximately 1.83 trillion yuan, indicative of a market in flux.

A closer examination of the stock movements reveals nuanced developments within specific sectorsNotably, banking stocks broke new records, with major state-owned banks such as Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank all marking historic highsHowever, it was the technology stocks, particularly those linked to the DeepSeek concept, that bore the brunt of investor sell-offsCompanies like DreamNet Technology and others in the sector faced immense pressure, seeing declines of up to 10% in their stock values, culminating in widespread sell-offs in which numerous stocks dropped beyond their daily limits.

Despite a backdrop of some stocks rising, the overall landscape painted a troubling picture for investorsAccording to data compiled by Wind, over 700 stocks managed to finish higher, while a sobering number exceeding 4,600 stocks closed in the redAmong these, 53 stocks reached their daily upsides, while 25 stocks hit their lower thresholds, revealing a pervasive trend of loss across the market.

The DeepSeek concept, in particular, demonstrated a collective weakness, as the associated index fell by 3.43%. Prominent names within this cluster, including Hangzhou Steel and others, saw significant drops in their stock prices, with several hitting the trading limit for lossesAmidst the turmoil, several companies issued warnings about their association with the DeepSeek concept, stating publicly that they have no business dealings with this specific AI initiative

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For instance, Runjian Technology explicitly stated that there is no cooperation or service contract with DeepSeek, distancing themselves from the concept amidst the uncertainty.

DreamNet Technology has been particularly a focus of the mediaDespite a remarkable streak of nine consecutive daily gains, the company faced a sudden and drastic drop following its clarification of ties to the DeepSeek projectAfter announcing that it had no involvement with DeepSeek's technology or any related enterprises, DreamNet’s stock plummeted, marking a cumulative drop of 20% over the course of two days after reaching a prior peak.

Trading insights provided by the Shanghai and Shenzhen Stock Exchanges reveal that DreamNet Technology's stock had been impacted severely by a trading anomaly, as its price deviation percentage exceeded established limits, warranting its mention on the 'Dragon and Tiger List'—a classification for stocks that see significant trading activityWith a total purchase volume of 161 million yuan compared to total sales at approximately 282 million yuan, the net outflow of 121 million yuan highlights the bearish sentiment surrounding the stock.

In terms of specific trading patterns, certain investment firms engaged heavily with DreamNet sharesNoteworthy purchases came from the Chongqing Jiangbei branch of Lianhe Securities, which acquired shares worth roughly 46.36 million yuanConversely, significant selling was noted from the Xi'an Zhuque Street branch of Guotou Securities, which divested over 100 million yuan worth of sharesThis paints a picture of a battleground where institutional momentum is playing a critical role in determining stock value.

Another stock closely monitored, Sunsea AI, also faced similar tribulations, showing a trading volume turnout of 3.38% with a transaction value of 151 million yuanSimilar to DreamNet, it faced trading regulations due to price drop triggers, indicating a systemic vulnerability within the sector notorious for wild fluctuations

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Information available indicates that its core business revolves around wireless communication modules and related communication service offerings.

The volatility surrounding AI-related stocks, particularly those associated with the DeepSeek concept, raises questions among analysts regarding the sustainability of such ralliesEven before the Lunar New Year, DeepSeek stocks were on a meteoric rise, with investors seemingly chasing a speculative bubbleConcerns linger that as market enthusiasm subsides and rational investment returns, capital will retreat from what many analysts have deemed overvalued sectors.

Reports from brokerage firms highlight a cautious outlook for future market movementsAccording to research from Everbright Securities, while the overall market experiences a phase of consolidation, there remains a persistent active interest in AI sectorsThe growing 'crowdedness' within technology, media, and telecommunications (TMT) stocks invites scrutiny, as many sub-segments have seen notable accumulation of gains, suggesting volatility in the near term as corrections take place.

Looking ahead, analysts at CITIC Securities are optimistic about the future of DeepSeek and similar platforms, predicting that the open-source ecosystem will accelerate AI adoption across application sectorsThis could serve as a catalyst for a re-evaluation of internet-based assets in China, signaling a potential shift in investment paradigms.

Huachuang Securities also commented on post-New Year trends, discussing the implications of external risks and how macroeconomic policies could shape investor sentimentNotably, discussions surrounding private enterprise roles in technological advancement are becoming progressively critical, reflecting a governmental push to bolster innovation within essential sectorsThis focus on tech startups could potentially fuel revival in growth-oriented stocks, offering strategic opportunities for investors willing to navigate these choppy waters.

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