Global Tech Stocks Tumble as DeepSeek's AI Breakthrough Challenges Industry Giants
Technology stocks around the world faced significant losses on Monday as investors reacted to the emergence of DeepSeek's new low-cost artificial intelligence (AI) model. The Chinese startup's innovative AI assistant has raised doubts about the dominance of established Western companies in the sector.
Last week, DeepSeek unveiled a free AI assistant that operates using less data and at a fraction of the cost of current leading models. This development signals a potential shift in the level of investment required for AI, prompting investors to reassess the valuations of major tech firms.
Futures on the Nasdaq 100 fell nearly four percent, indicating that the index could experience its largest daily decline since September 2022. The S&P 500 futures dropped two percent. Shares of AI chipmaker Nvidia plummeted 10 percent, while Oracle and AI data analytics firm Palantir saw declines of eight and seven percent, respectively, in pre-market trading.
DeepSeek's assistant has quickly gained popularity, surpassing the U.S.-based ChatGPT in downloads on the Apple Store as of Monday. The prospect of a viable, cost-effective AI alternative has led to questions about the sustainability of the substantial investments made by Western companies such as Apple and Microsoft in AI development.
Investor Sentiment Shifts
From Tokyo to Amsterdam, shares of AI-focused companies experienced steep declines. \"We still don't know the details and nothing has been 100 percent confirmed regarding the claims,\" said Jon Withaar, 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 an alleged $6 million, this is very positive for productivity and AI end users, as the cost of access is obviously much lower.\"
The AI boom has fueled significant capital inflows into equity markets over the past 18 months, driving up company valuations and pushing stock markets to record highs. Nvidia's stock alone has surged over 200 percent, trading at 56 times its earnings value.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on social media platform X. Drawing parallels to the Soviet Union's 1957 satellite launch that ignited the space race, Andreessen said, \"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.\"
European tech firms also felt the impact. ASML Holding, whose customers include TSMC, based in the Taiwan region, Intel, and Samsung, saw its shares drop nearly 11 percent. In Japan, SoftBank Group, a major investor in startups, fell more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
As major technology companies increase spending on AI capabilities, optimism about potential returns has led to soaring stock valuations. However, recent developments have prompted market participants to question the capital expenditures of these tech giants.
\"The market is re-evaluating the capital spending of 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, added, \"There's concern that the perspective of America's most cutting-edge technologies being the most superior globally 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
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