Investors around the globe reacted swiftly on Monday to the emergence of DeepSeek, a Chinese startup that unveiled a low-cost artificial intelligence (AI) assistant. This development has cast doubts on Western tech giants' dominance in the AI sector, leading to a significant sell-off in major technology stocks.
DeepSeek's AI assistant, launched last week, promises to operate using less data at a fraction of the cost compared to existing models from incumbent players. The possibility of a turning point in AI investment costs has prompted investors to reassess the valuations of big tech companies heavily invested in AI development.
Futures on the Nasdaq 100 dropped nearly four percent, hinting at what could be the index's most substantial daily decline since September 2022. The S&P 500 futures fell by two percent. Pre-market trading saw shares in AI chipmaker Nvidia plunge 10 percent, Oracle drop eight percent, and AI data analytics firm Palantir lose seven percent.
DeepSeek's rapid rise in popularity, overtaking U.S. rival ChatGPT in downloads on the Apple Store by Monday, offers the prospect of a viable and cheaper AI alternative. This has raised questions about the sustainability of the substantial spending and investment in AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. Jon Withaar, senior portfolio manager at Pictet Asset Management, commented, \"We still don't know the details and nothing has been 100 percent confirmed regarding the claims. But if there truly has been a breakthrough in the cost to train models from over $100 million to this alleged $6 million number, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
The AI sector has seen massive capital inflows over the past 18 months, with investor enthusiasm driving up company valuations and pushing stock markets to record highs. However, DeepSeek's breakthrough may signal a shift in this trend.
'Sputnik moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday. Drawing a parallel to the Soviet Union's 1957 satellite launch that ignited the space race, Andreessen stated, \"DeepSeek R1 is one of the most amazing and impressive breakthroughs I've ever seen—and as open source, a profound gift to the world.\"
In Europe, shares of companies closely tied to AI suffered losses. ASML, which counts the Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as customers, dropped almost 11 percent. In Japan, SoftBank Group, a major investor in startups, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech companies have significantly increased spending on developing AI capabilities, with optimism about potential returns driving their stock valuations to lofty heights. Nvidia, for example, has seen its stock price rise by over 200 percent in the past 18 months and trades at 56 times its earnings, compared to the Nasdaq's 16 times multiple.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"The idea that the most cutting-edge technologies in America, like Nvidia and ChatGPT, are the most superior globally—there's concern that this perspective might start to change.\" He cautioned, however, that \"it might be a bit premature\" to draw definitive conclusions.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
