DeepSeek's 'Sputnik Moment' Prompts Global Sell-Off in AI Stocks
Investors around the world are reeling as technology stocks tumbled on Monday, with industry giants like Nvidia and Oracle experiencing significant declines. The catalyst? The emergence of DeepSeek, a Chinese startup that has unveiled a low-cost artificial intelligence (AI) model, casting doubts on Western companies' dominance in the sector.
Last week, DeepSeek launched a free AI assistant that reportedly operates using less data and at a fraction of the cost of existing models from incumbent players. This development could mark a pivotal turning point in the AI industry, challenging the level of investment traditionally required for AI advancements.
Global markets reacted swiftly. Futures on the Nasdaq 100 slid almost four percent, signaling what could become the index's most substantial daily drop since September 2022 if losses persist. The S&P 500 futures fell by two percent. In pre-market trading, shares of AI chipmaker Nvidia plummeted by 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
The ripple effect was felt across continents. From Tokyo to Amsterdam, shares in AI-focused companies faced sharp declines.
DeepSeek's Rapid Rise
By Monday, DeepSeek had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offering a viable and more affordable AI alternative. This surge has raised questions about the sustainability of the heavy spending and investment on AI by Western tech giants, including Apple and Microsoft.
\"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, this is very positive for productivity and AI end users, as the cost of access is obviously much lower.\"
The enthusiasm around AI has fueled massive capital inflows into equity markets over the past 18 months. Investors have poured funds into the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen took to social media platform X on Sunday, describing DeepSeek's R1 model as AI's \"Sputnik moment\"—a reference to the Soviet Union's 1957 launch of the first artificial satellite, which intensified 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 remarked.
This sentiment reflects the growing belief that DeepSeek's innovation could democratize AI technology, making it more accessible and affordable worldwide.
Meanwhile, in Europe, ASML Holding, which counts TSMC of the Taiwan region, Intel, and Samsung among its customers, saw its shares drop almost 11 percent. In Japan, investor SoftBank Group slid more than eight percent after announcing 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 skyward. Nvidia, for example, has risen over 200 percent in about 18 months and trades at 56 times the value of its earnings.
\"The market is questioning the capital expenditure spending of 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, added, \"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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
