Global technology stocks plunged on Monday as investors reacted to the emergence of DeepSeek, a low-cost Chinese artificial intelligence model that challenges Western companies' dominance in the sector. Major players like Nvidia and Oracle saw their shares plummet, sparking concerns about the sustainability of heavy investments in AI by Western firms.
DeepSeek, a startup from China, launched a free AI assistant last week that operates using less data at a fraction of the cost of existing models. This development has been described as a potential turning point in AI investment, highlighting the possibility of achieving advanced AI capabilities without exorbitant spending.
Futures on the Nasdaq 100 dropped almost four percent, indicating the index could face its biggest daily decline since September 2022. The S&P 500 futures fell by two percent. In pre-market trading, shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek's rapid ascent was marked by overtaking U.S. rival ChatGPT in downloads on the Apple Store by Monday. The startup's offering of a viable, cost-effective AI alternative has prompted questions about the long-term investment strategies of Western tech giants, including Apple and Microsoft.
Global Market Impact
From Tokyo to Amsterdam, shares in AI-related companies tumbled. In Europe, semiconductor equipment maker ASML dropped almost 11 percent. In Japan, SoftBank Group, a significant investor in technology startups, slid more than eight percent. Just last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Industry experts are weighing in on the implications of DeepSeek's breakthrough. Marc Andreessen, a renowned Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 satellite launch that 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 posted on social media platform X.
Market analysts are assessing the potential shift in the AI landscape. Jon Withaar, senior portfolio manager at Pictet Asset Management, remarked, \"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 cost is obviously much lower meaning lower cost of access.\"
Reevaluating Tech Valuations
The hype surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, significantly inflating company valuations. Nvidia, for instance, has soared by over 200 percent and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. \"The market is re-evaluating the capex spending of the major tech companies,\" he said.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution. \"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,\" Ichikawa commented. \"I think it might be a bit premature.\"
A Turning Point in AI Investment
DeepSeek's emergence signals a potential shift in the global AI industry. As the startup offers efficient AI solutions at a lower cost, investors and tech companies worldwide are closely watching this development. The reevaluation of AI investment strategies could lead to more accessible AI technologies and a more competitive market landscape.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
