Investors across the globe sold off major technology stocks on Monday, leading to significant declines in companies such as Nvidia and Oracle. The sell-off was prompted by the emergence of a low-cost Chinese artificial intelligence model from startup DeepSeek, challenging Western dominance in the AI sector.
DeepSeek unveiled its free AI assistant last week, claiming it operates using less data at a fraction of the cost of incumbent models. This development could mark a turning point in the investment required for AI, potentially lowering barriers to entry and altering the competitive landscape.
Futures on the Nasdaq 100 dropped nearly 4%, indicating the index could experience its most substantial daily decline since September 2022 if losses persist. Shares of AI chipmaker Nvidia fell 10%, Oracle decreased by 8%, and AI data analytics company Palantir lost 7% in pre-market trading.
By Monday, DeepSeek had surpassed U.S. rival ChatGPT in downloads on the Apple Store, signaling strong user adoption. The prospect of a viable, more affordable AI alternative has raised questions about the sustainability of high levels of spending and investment on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled as investors reacted to the news.
\"We still don't know the details and nothing has been 100% 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, this is very positive for productivity and AI end users, as costs are obviously much lower, meaning lower cost of access,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The excitement around AI has fueled substantial capital inflows into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs.
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's launch of the Sputnik satellite, which marked the start of the space race in the late 1950s. \"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,\" he said in a post on X.
In Europe, shares in companies such as ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped nearly 11%. In Japan, startup investor SoftBank Group fell more than 8%. Last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have significantly increased spending on developing AI capabilities, and optimism about potential returns has driven stock valuations to substantial heights.
Nvidia alone has risen by over 200% in about 18 months and trades at 56 times the value of its earnings, compared with a 53% rise in the Nasdaq, which trades at a multiple of 16 times the value of its constituents' earnings, according to LSEG data.
\"The market is questioning the capital expenditure spending of the major tech companies,\" said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented, \"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.\"
\"I think it might be a bit premature,\" Ichikawa added.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
