Investors worldwide are reevaluating their stakes in major technology companies as DeepSeek, a Chinese startup, unveils a low-cost artificial intelligence model that challenges the dominance of Western tech giants. The launch has sent shockwaves through global markets, leading to significant drops in the shares of leading AI players.
Last week, DeepSeek introduced a free AI assistant that operates using less data and at a fraction of the cost of existing models. This development suggests a potential shift in the investment landscape for AI technology, signaling that substantial capital may no longer be a prerequisite for innovation in this sector.
On Monday, futures on the Nasdaq 100 fell nearly 4%, hinting at what could be the index's most significant daily decline since September 2022. The S&P 500 futures dropped 2%. Key players felt the impact sharply: AI chipmaker Nvidia's shares plunged 10%, Oracle fell 8%, and AI data analytics firm Palantir saw a 7% decline in pre-market trading.
DeepSeek's assistant has quickly gained popularity, surpassing U.S. rival ChatGPT in downloads on the Apple Store by Monday. The prospect of a viable and more affordable AI alternative is prompting investors to question the sustainability of heavy spending by Western companies like Apple and Microsoft on AI development.
From East to West, Markets React
The ripple effect of DeepSeek's announcement was felt across global markets. In Asia, shares of AI-related companies tumbled. "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 reducing the cost to train models from over $100 million to around $6 million, this is very positive for productivity and AI end users."
The excitement around AI has driven massive capital inflows into equity markets over the past 18 months, with investor enthusiasm inflating company valuations and pushing stock markets to record highs. The potential for lower-cost AI solutions could recalibrate expectations and valuations.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's "Sputnik moment." Drawing parallels to the Soviet Union's satellite launch that ignited the space race in the 1950s, Andreessen highlighted the significance of this development in a post on social media platform X. "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 commented.
In Europe, companies supplying AI technology faced declines. ASML Holding, which counts Taiwan's TSMC, Intel, and Samsung among its customers, saw shares drop nearly 11%. In Japan, SoftBank Group, known for its investments in startups, slid more than 8%. Just last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Reconsidering Investments in AI
The aggressive investment in AI capabilities by Big Tech has been a hallmark of recent market trends, with optimism about potential returns driving stock valuations to soaring heights. Nvidia, for example, has seen its stock price surge by over 200% in the past 18 months.
Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, noted that the market is now scrutinizing the capital expenditures of major tech companies. "Investors are questioning whether the substantial spending on AI development is justified in light of new, more cost-effective alternatives," he said.
Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management, cautioned against jumping to conclusions. "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," Ichikawa said. "However, it might be a bit premature to make that call."
As DeepSeek's impact continues to unfold, investors and industry leaders alike are closely watching how this development will reshape the AI landscape and global investment strategies.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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