Global technology stocks experienced a significant downturn on Monday as investors reacted to the emergence of DeepSeek, a Chinese artificial intelligence startup that unveiled a low-cost AI model. The development has raised concerns over Western companies' dominance in the AI sector, prompting a sell-off of major tech stocks.
DeepSeek's new AI assistant, launched last week, claims to operate using less data and at a fraction of the cost of existing models from established players. The announcement is seen by many as a potential turning point in the AI industry, challenging the substantial investments made by Western tech giants.
Futures on the Nasdaq 100 dropped nearly 4%, indicating the index could face its largest daily decline since September 2022 if losses persist. Pre-market trading saw shares of AI chipmaker Nvidia fall by 10%, software company Oracle decrease by 8%, and AI analytics firm Palantir lose 7%.
DeepSeek's assistant has quickly gained popularity, surpassing U.S. rival ChatGPT in Apple Store downloads by Monday. The prospect of a viable, cost-effective AI alternative has prompted investors to reevaluate the sustainability of high spending on AI development by companies like Apple and Microsoft.
Market reactions were felt globally, with shares in AI-related firms tumbling from Tokyo to Amsterdam. Jon Withaar, senior portfolio manager at Pictet Asset Management, commented, \"If there truly has been a breakthrough in the cost to train models… this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
Venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 satellite launch 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,\" he stated.
The significant capital inflows into AI have led to soaring valuations for tech companies over the past 18 months. Nvidia's shares have risen over 200% during this period, trading at 56 times its earnings value. In comparison, the Nasdaq has risen by 53% and trades at a multiple of 16 times the earnings of its constituents.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditures of major tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution, saying, \"The idea that the most cutting-edge technologies in America… are the most superior globally, there's concern that this perspective might start to change.\"
As the AI industry continues to evolve, DeepSeek's breakthrough highlights the rapid advancements in technology emanating from Asia, signaling a shift in the global tech landscape.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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