Investors around the globe reacted swiftly to the emergence of DeepSeek's groundbreaking artificial intelligence (AI) model, leading to a significant sell-off in major Western tech stocks. On Monday, shares of prominent technology companies such as Nvidia, Oracle, and Palantir plummeted, reflecting concerns over the sustainability of their dominance in the AI sector.
Last week, Chinese startup DeepSeek unveiled a free AI assistant that operates using less data and at a fraction of the cost of existing models from established players. This innovation is being hailed as a potential turning point in AI development, challenging the necessity for massive investments traditionally required in the industry.
Futures on the Nasdaq 100 slid almost 4%, indicating that the index could experience its most substantial daily decline since September 2022. Shares in AI chipmaker Nvidia fell by 10%, Oracle dropped by 8%, and AI data analytics firm Palantir saw a 7% decline in pre-market trading.
DeepSeek's assistant quickly surpassed U.S. rival ChatGPT in downloads on the Apple Store by Monday. The prospect of a viable and more affordable AI alternative has raised questions about the long-term investment strategies of Western companies like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled in response. Jon Withaar, a senior portfolio manager at Pictet Asset Management, noted, \"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 is obviously much lower, meaning lower cost of access.\"
The enthusiasm surrounding AI has fueled significant capital inflows into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs. Nvidia's stock alone has risen over 200% in this period, trading at 56 times its earnings value. In contrast, the Nasdaq has risen by 53%, trading at a multiple of 16 times earnings, according to LSEG data.
'Sputnik Moment'
Silicon Valley venture capitalist Marc Andreessen referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 satellite launch that initiated the space race. He stated, \"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.\"
In Europe, semiconductor equipment maker ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped almost 11%. In Japan, startup investor SoftBank Group slid more than 8% after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, commented on the market's reaction, saying that investors are questioning the capital expenditures of major tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution, stating, \"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. 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
