DeepSeek's 'Sputnik Moment' Shakes Global Tech Markets
In a dramatic turn of events, investors around the world offloaded shares in major technology companies on Monday, causing significant declines in stock prices of industry giants like Nvidia and Oracle. The sell-off was triggered by the emergence of a low-cost Chinese artificial intelligence model developed by startup DeepSeek, casting doubt on the dominance of Western companies in the rapidly evolving AI sector.
DeepSeek unveiled its free AI assistant last week, claiming it operates at a fraction of the data and cost required by existing models. This breakthrough suggests a potential shift in the level of investment necessary for AI development, challenging the high-cost strategies of established players.
The impact on the markets was immediate. Futures on the Nasdaq 100 dropped nearly four percent, indicating the index could experience its most significant daily decline since September 2022 if losses continue. The S&P 500 futures fell by two percent. Shares in AI chipmaker Nvidia plummeted by 10 percent, Oracle decreased by eight percent, and AI analytics firm Palantir saw a seven percent drop in pre-market trading.
DeepSeek's AI assistant quickly overtook U.S. competitor ChatGPT in downloads on the Apple Store by Monday, offering a viable and more affordable AI alternative. This development has raised questions about the sustainability of exorbitant spending and investment in AI by Western corporations such as Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
The ripple effect was felt from Tokyo to Amsterdam, with shares in AI-focused companies tumbling across global markets.
\"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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"Cost is obviously much lower, meaning lower cost of access.\"
The hype surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, as investors bet on the technology's potential, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment' for AI
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, alluding to the Soviet Union's 1957 satellite launch 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 stated in a separate post.
In Europe, shares of semiconductor equipment maker ASML, which counts leading companies like Taiwan's TSMC, Intel, and Samsung among its customers, dropped nearly 11 percent. In Japan, SoftBank Group, an investor in startups, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major tech companies have been ramping up spending on developing 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 and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, according to LSEG data.
\"The market is questioning the capital expenditure spending of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution: \"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
