Investors across the globe reeled on Monday as technology stocks took a significant hit, with industry giants like Nvidia and Oracle experiencing steep declines. The catalyst? The debut of a low-cost artificial intelligence model from Chinese startup DeepSeek, which has cast a shadow over Western companies' dominance in the AI sector.
Last week, DeepSeek launched a free AI assistant that, according to the company, operates using less data and at a fraction of the cost of existing models from incumbent players. This development could mark a pivotal moment in AI investment, challenging the high-cost barriers traditionally associated with AI development.
Futures on the Nasdaq 100 plummeted nearly four percent, indicating the index could face its most substantial daily drop since September 2022 if losses persist. The S&P 500 saw futures decline by two percent. In pre-market trading, shares of AI chipmaker Nvidia fell by 10 percent, Oracle dropped eight percent, and AI data analytics firm Palantir lost seven percent.
DeepSeek's rapid rise to prominence was underscored by its ascent to the top of the Apple Store downloads, surpassing U.S. rival ChatGPT. The prospect of a viable, cost-effective AI alternative has raised concerns about the sustainability of the massive spending and investment in AI by Western companies, including tech behemoths like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled in response to DeepSeek's announcement.
\"We still don't know the details, and nothing has been 100 percent confirmed regarding the claims,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"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 fervor surrounding AI has driven substantial capital inflows into equity markets over the past 18 months, with investor enthusiasm inflating company valuations and propelling stock markets to record highs.
'Sputnik Moment'
Silicon Valley venture capitalist Marc Andreessen took to social media platform X on Sunday, referring to DeepSeek's R1 model as AI's \"Sputnik moment,\" 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 Europe, shares of ASML Holding, which counts TSMC from the Taiwan region, Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, SoftBank Group, a major investor in startups, slid more than eight percent following its announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech companies have been ramping up spending to develop AI capabilities, with optimism over potential returns driving stock valuations sky-high. Nvidia alone has surged over 200 percent in about 18 months and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech firms. \"The market was questioning the capex spending of the major tech companies,\" he said.
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. I think it might be a bit premature.\"
As the AI landscape evolves rapidly, DeepSeek's entry represents a significant development that could reshape the global AI market, prompting both investors and industry players to reassess their strategies in this dynamic sector.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
