Investors hammered technology stocks on Monday, sending major players like Nvidia and Oracle plummeting, as the emergence of a low-cost Chinese artificial intelligence (AI) model from startup DeepSeek cast doubts on Western companies' dominance in the sector.
DeepSeek last week launched a free AI assistant it claims uses less data and operates at a fraction of the cost of incumbent models. This development possibly marks a turning point in the level of investment needed for AI, challenging the status quo established by tech giants.
Futures on the Nasdaq 100 slid almost four percent, indicating the index could experience its biggest daily drop since September 2022 if the losses persist. Futures on the S&P 500 dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, while AI data analytics company Palantir lost seven percent in pre-market trading.
Global Market Turbulence
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent, just days after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
\"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 actually 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.\"
A Turning Point in AI Investment
The hype around AI has fueled massive capital inflows into equity markets over the past 18 months, as investors bought into the technology, inflating company valuations and pushing stock markets to record highs. Big Tech has ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 to the value of its constituents' 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.
DeepSeek's 'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's launch of the Sputnik satellite that marked the beginning of the space race in the late 1950s.
\"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 social media platform X.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented on the potential shift in the global AI landscape. \"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,\" he said. \"I think it might be a bit premature.\"
Future Outlook
The emergence of DeepSeek's low-cost AI model raises questions about the sustainability of the current level of spending and investment on AI by Western companies, including Apple and Microsoft. As investors reassess the competitive landscape, the tech industry may witness a shift in how AI development is approached and funded.
The unfolding developments signify a dynamic period in the AI sector, with potential implications for global markets, technology investment strategies, and the future of artificial intelligence innovation.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
