DeepSeek’s AI Breakthrough Triggers Global Tech Stock Decline

Investors globally are reassessing their positions in major technology stocks following the emergence of DeepSeek, a Chinese artificial intelligence startup that has unveiled a groundbreaking low-cost AI model. On Monday, shares in prominent Western tech companies, including Nvidia, Oracle, and Palantir, saw significant declines as DeepSeek's new AI assistant challenged the dominance of existing players in the sector.

Last week, DeepSeek launched a free AI assistant that it claims operates using less data and at a fraction of the cost of incumbent models. This development is seen by some analysts as a potential turning point in the AI industry, possibly reducing the high levels of investment traditionally required for AI development.

Futures on the Nasdaq 100 fell almost four percent, indicating the index could experience its largest daily drop since September 2022 if the trend continues. The S&P 500 futures also dropped 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 assistant, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cost-effective AI alternative. This has raised questions about the sustainability of the high levels of spending and investment in AI by Western companies, including Apple and Microsoft.

\"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, a senior portfolio manager at Pictet Asset Management. \"Cost is obviously much lower, meaning lower cost of access.\"

From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts the Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as customers, dropped almost 11 percent. In Japan, SoftBank Group, a significant investor in tech startups, slid more than eight percent. Last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.

Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the first artificial satellite, which spurred 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 said in a post on the social media platform X.

The surge in AI development has propelled significant capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Big Tech companies have ramped up spending on AI capabilities, with optimism over potential returns driving stock prices. Nvidia has risen by over 200 percent during this period and trades at 56 times its earnings, compared to the Nasdaq's rise of 53 percent and a multiple of 16 times earnings, according to LSEG data.

\"The market is questioning the capital expenditure spending of the major tech companies,\" said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.

Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noted, \"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.\"

\"I think it might be a bit premature,\" Ichikawa added.