Global technology markets faced a significant shake-up on Monday, as investors sold off shares in major AI companies following the emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek.
DeepSeek's recent launch of its free AI assistant, which reportedly uses less data at a fraction of the cost of existing models, has cast doubts on Western companies' dominance in the AI sector. The company's breakthrough is seen as a potential turning point in the level of investment needed for AI development.
The Nasdaq 100 futures slid almost four percent, hinting at the possibility of the index experiencing its biggest daily decline since September 2022. Shares in prominent AI companies took a hit, with AI chipmaker Nvidia dropping 10 percent, Oracle falling eight percent, and AI data analytics firm Palantir losing seven percent in pre-market trading.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the historical launch of the Soviet Union's satellite in the late 1950s that 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 stated in a post on X (formerly Twitter).
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts TSMC from Taiwan region, Intel, and Samsung among its customers, dropped nearly 11 percent. In Japan, investor SoftBank Group slid over eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
\"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. \"Lower costs mean greater accessibility.\"
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. \"There's concern that the perspective of American technologies like Nvidia and ChatGPT being the most superior globally might start to change,\" added Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. \"However, it might be a bit premature.\"
The surge in AI hype has driven massive inflows of capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Nvidia alone has risen over 200 percent during this period and trades at 56 times the value of its earnings, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
As DeepSeek continues to gain traction, its impact on the global AI landscape remains to be seen. The development highlights the rapidly evolving nature of AI technology and the shifting dynamics in global tech leadership.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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