Investors around the world have sent shockwaves through the technology sector, with major players like Nvidia and Oracle experiencing significant stock declines. The catalyst? The emergence of DeepSeek, a Chinese startup that has unveiled a low-cost artificial intelligence model, challenging the dominance of Western tech giants in the AI industry.
Last week, DeepSeek launched a free AI assistant that reportedly operates using less data at a fraction of the cost compared to existing models from incumbent companies. This development has prompted investors to reassess the value and sustainability of heavy investments in AI by Western firms.
Futures on the Nasdaq 100 slid nearly four percent, indicating a potential substantial drop when markets open. Nvidia, a leading AI chipmaker, saw its shares fall by 10 percent, while rival Oracle dropped eight percent. AI data analytics company Palantir also faced a seven percent decline in pre-market trading.
DeepSeek's AI assistant, which has overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cheaper AI alternative. This has raised questions about the high levels of spending by Western companies, including Apple and Microsoft, on AI development.
A Global Ripple Effect
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. Jon Withaar, a 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 \$100 million+ to this alleged \$6 million number, this is very positive for productivity and AI end users.\"
The hype around AI has attracted massive capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. The emergence of DeepSeek's cost-effective model is causing investors to reconsider the sustainability of such high valuations.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the historic launch of the Soviet satellite that ignited the space race. \"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 shared on social media.
In Europe, ASML Holding, which counts TSMC, Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, SoftBank Group, a major startup investor, 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 to develop AI capabilities, with optimism over potential returns driving stock valuations to soaring heights. Nvidia alone has risen by over 200 percent in about 18 months but is now facing investor scrutiny.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditures 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 are the most superior globally—there's concern that this perspective might start to change.\"
The unfolding developments around DeepSeek's AI model signify a potential shift in the global AI landscape, prompting both investors and tech companies to reassess strategies in this rapidly evolving sector.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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