Global technology stocks experienced a significant downturn on Monday as investors reacted to the emergence of DeepSeek's low-cost artificial intelligence (AI) model. Major players like Nvidia and Oracle saw their shares plummet, raising questions about Western companies' dominance and investment strategies in the AI sector.
Chinese startup DeepSeek recently launched a free AI assistant that claims to operate using less data at a fraction of the cost compared to incumbent models. This development could mark a turning point in the investment required for AI, potentially reshaping the industry's landscape.
Futures on the Nasdaq 100 fell nearly four percent, indicating the index could face its most substantial daily decline since September 2022 if losses persist. The S&P 500 futures dropped two percent. Shares of AI chipmaker Nvidia fell 10 percent, Oracle decreased by eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, presents a viable, cost-effective AI alternative. This advancement has led investors to question the sustainability of the substantial spending by Western companies such as Apple and Microsoft on AI development.
'Sputnik Moment' in 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. Drawing parallels to the former Soviet Union's 1957 satellite launch that ignited the space race, Andreessen highlighted the significance of DeepSeek's breakthrough.
\"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.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts TSMC (based in the Taiwan region), Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent after announcing a \$19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Industry experts are weighing in on the potential impact. \"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 an alleged \$6 million, this is very positive for productivity and AI end-users,\" said Jon Withaar, senior portfolio manager at Pictet Asset Management. \"Lower costs mean greater access.\"
The hype around AI has driven massive capital inflows into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs. Big Tech firms have significantly increased spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high.
Nvidia, for example, has risen by over 200 percent in approximately 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 the value of its constituents' earnings, 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, commented on the shifting perceptions: \"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.\"
However, Ichikawa added, \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
