DeepSeek's AI 'Sputnik Moment' Shakes Global Tech Markets
Global technology stocks tumbled on Monday as the debut of DeepSeek's low-cost artificial intelligence model raised doubts about Western companies' dominance in the sector. Investors reacted sharply, leading to significant declines for major AI players.
Startup DeepSeek unveiled a free AI assistant last week, claiming it operates with less data and at a fraction of the cost of existing models. This development could mark a turning point in the investment landscape for AI, challenging the heavy spending by established tech giants.
Futures on the Nasdaq 100 fell nearly four percent, indicating the index could face its most substantial daily drop since September 2022 if losses persist. The S&P 500 futures declined by two percent. In pre-market trading, shares of AI chipmaker Nvidia dropped 10 percent, Oracle declined eight percent, and AI data analytics firm Palantir fell seven percent.
DeepSeek's assistant, which by Monday surpassed U.S. rival ChatGPT in Apple Store downloads, offers a viable, cheaper AI alternative. This has prompted questions about the sustainability of the significant investment levels in AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, AI stocks saw declines. In Europe, ASML Holding, which counts Intel, Samsung, and the Taiwan Semiconductor Manufacturing Company (TSMC) 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.
Investor Reactions
\"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 an alleged $6 million, this is very positive for productivity and AI end users, as it means a lower cost of access.\"
The hype around AI has driven substantial capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Nvidia alone has surged over 200 percent during this period, trading at 56 times its earnings value, compared to the Nasdaq's multiple of 16.
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. Similarly, 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.\"
A '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. The term evokes the Soviet Union's launch of the Sputnik satellite in the late 1950s, which marked the beginning of 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,\" Andreessen stated in a separate post.
Future Implications
Big Tech companies have ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations high. However, DeepSeek's breakthrough raises questions about the sustainability of such heavy investments.
As the AI landscape evolves, investors and industry leaders will be closely watching how these developments impact global markets and the competitive dynamics between established tech giants and emerging players like DeepSeek.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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