In a dramatic turn of events, investors offloaded shares in major technology companies on Monday, leading to significant declines in stocks like Nvidia and Oracle. The catalyst was the emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek, which has cast doubts on Western companies' dominance in the AI sector.
Last week, DeepSeek launched a free AI assistant that it claims operates using less data at a fraction of the cost of existing models. This development potentially marks a pivotal moment, signaling a shift in the level of investment required for AI technologies.
Futures on the Nasdaq 100 fell nearly four percent, suggesting the index could face its largest daily drop since September 2022 if losses persist. The S&P 500 futures also declined by two percent. Shares in AI chipmaker Nvidia dropped 10 percent, while rivals Oracle and AI data analytics firm Palantir experienced pre-market declines of eight percent and seven percent respectively.
DeepSeek, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers the prospect of a viable, more affordable AI alternative. This has raised questions about the sustainability of the substantial spending and investment on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled as the market reacted to DeepSeek's breakthrough.
\"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 very positive for productivity and AI end users, as costs are obviously much lower, meaning lower cost of access,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The hype around AI has driven a massive inflow of capital into equity markets over the past 18 months, as investors have flocked to the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment'
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 former 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 said in a separate post.
In Europe, shares of ASML Holding, which counts TSMC, Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group fell more than eight percent. Last week, it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have significantly increased spending on AI development, and optimism over potential returns has driven their stock valuations sky-high. Nvidia alone has risen by over 200 percent in the last 18 months and trades at 56 times its earnings, 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 was questioning the capital expenditure of major tech companies.
\"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,\" said Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management. \"I think it might be a bit premature,\" he added.
As DeepSeek's innovative AI model shakes up the industry, investors and market analysts are closely watching how this development might reshape the competitive landscape and impact future investments in artificial intelligence.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
